The the US have embarked on effective macro-prudential

 The period of economic slowdown affected
banking regulation on all standard approaches. Policymakers have now understood
that financial guideline cannot be based simply on financial institutions`
peril. As a result, systematic risk and macroprudential regulation have been the
main emphasis on regulatory system.

The 2007-2008 financial disaster
called for an effective macroprudential policies and measures to alleviate
systematic risk. In US, the high costs of the crisis proved that progressive
risk assessment and effective policy action are required to ensure that the possibility
of such risk reoccurring is minimized.

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Resulting from the crisis,
regulators have strived to understand its causes and how best to prevent
similar disturbances from happening in the future. Weighing in on this paper, I
provide insight into managing systematic risk and how concentrations of
financial stability can somehow reflect to the need for accommodative monetary
policy. For instance, since 2008 the US accommodative monetary policy has
helped to overhaul the balance sheets of households, nonfinancial firms, and
financial sector.The need for a dynamic and stable
financial system resistant to possible risks and disturbances is essential
after the financial crisis in 2008. Financial stability through effective
regulation and supervision is obligatory. The crisis displayed that stability
in price does not proved macroeconomic stability and as a result, financial
stability through macroprudential policy must be in place. This is because, steady
financial institutions are a prerequisite for a sustainable economic growth.

Prior to the crisis, regulators
concentrated on easy instruments such as market discipline and communication to
safeguard financial stability. Macro-financial ties were not taken into
consideration and the transmission of danger across the financial system were
ignored. But this view changed after the global calamity which led to a hard
policy measure to ease systematic risk. Since the crisis, several institutions
such as the Financial Stability Oversight Council in the US have embarked on
effective macro-prudential policy and have activated macro-prudential
instruments. Most of these instruments help to prevent the “procyclicality” of
the financial system on the asset and liability sides.

The aim of this paper is to present
the various instruments of macroprudential policy as a measure to prevent systematic
risk. The structure of the paper is as follows. Section 2 briefly introduces
the concept of systematic risk and macroprudential policies. The reason for
macroprudential policies and the measurement of systematic risk. Section 3 looked
into the financial crisis and presents range of instruments available to prevent
systematic risk. Section 4 discussed challenges faced by US in facilitating a
sustainable macroprudential policies. It also explained who is responsible for
macro-prudential policies in US; And proposed eight propositions on effective
macro-prudential policies. Section 5 concludes.”The risk of a systematic crisis
occurring is called systematic risk”. The great depression shows an example of
systematic risk. Investors in 2008 saw the values of their investments change
drastically from the economic shock. The financial crisis affected asset
classes in different ways as riskier securities were sold off in large numbers,
while simpler assets, such U.S. Treasury Bonds, became more valuable.

Macroprudential policies are aimed
to monitor and assess financial institutions variability. It refers to preserving
the whole inflexibility of the financial system through instruments of regulation
and supervision. For it to be effective and efficient, a strong and defined
macroprudential policies are needed to support the stability of the banking
sector. Central banks and other financial institutions required a well-defined
policies and instruments to enforce responsibilities and activities inevitably.
Such policies can be complimentary to micro-prudential supervision. In as much
as financial and monetary policy can facilitate financial constancy,
macroprudential policies differ from it, simply in its instruments.

“Macroprudential” refers to a
method of financial regulation that relate conventional macroeconomic policy
and traditional “micro-prudential” regulation of individual financial system
(Elliott 2011). The goal of a regulator is to mitigate systematic risk that
could affect the financial system. The policy could be either “structural
macroprudential” policies which aim to sustain the system against pressures
that are present to some degree, or “cyclical macroprudential” policies which
aim to revive financial instability that could affect the system over time.

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