Fritz Zurbrügg: Macroprudential policy beyond the pandemic: Taking stock and looking ahead

In the aftermath of the Global Financial Crisis (GFC), national regulators and international institutions joined forces to build the foundations of our current macroprudential frameworks. These comprise policies aimed at containing the build-up of vulnerabilities to which the banking sector is exposed, and at strengthening banking sector resilience. By pursuing these objectives, macroprudential policy contributes to financial stability, which is essential to achieving more stable economic growth.

Experience so far shows that macroprudential instruments have helped to slow down the build-up of vulnerabilities, without being able to prevent them completely. Even more importantly, macroprudential instruments have contributed to an increase in banking sector capitalisation, which has strengthened banks’ resilience. The importance of resilience was particularly evident during the coronavirus pandemic. Among other factors, banks’ substantial capital buffers have enabled them to continue lending to the real economy, thereby contributing to the recovery.

Financial system vulnerabilities have increased since the start of the pandemic. Several national authorities and international institutions have highlighted stretched valuations, in particular in real estate markets. Policymakers in many countries have already responded to these developments by tightening macroprudential policy.

In Switzerland too, vulnerabilities in the residential real estate and mortgage markets have increased since the start of the pandemic. Numerous indicators point towards increasing overvaluations in the residential real estate market. At the same time, affordability risks have risen over recent years. To maintain banking sector resilience in the face of these increased vulnerabilities, the Federal Council reactivated the sectoral countercyclical capital buffer (SCCyB) in January this year to a level above the pre-pandemic one, following a proposal by the Swiss National Bank.

Going forward, the resilience of the Swiss banking sector must be preserved. This implies maintaining the structural capital buffers introduced in response to the GFC and adjusting capital buffers in response to the development of vulnerabilities in the mortgage and residential real estate markets, as evidenced by the recent reactivation of the SCCyB.