The term "Financial Stability" took on a specific context as a result of the GFC. It is now specifically understood to mean as addressing the build-up of systemic risks which in turn is defined as disruptions to the financial system that can adversely affect the real economy. Macroprudential policy is the means for mitigating these systemic risks.
Macroprudential policy does not take anything away from the scope and focus of other policy objectives. Instead, it adds a new policy consideration for financial authorities which was overlooked until the emergence of the GFC. As various studies/publications from financial authorities and multilateral institutions have repeatedly emphasized, monetary policy and banking supervision, on their own, are unable to achieve financial stability as it is now defined.
As a guide, the BSP and the
Financial Stability Coordination Council (FSCC) have adopted the following definition of "Financial Stability."
“Financial stability is the state when prospective systemic risks are mitigated so as to allow financial consumers, both individuals and corporate entities, to pursue viable economic goals while avoiding disruptions to the smooth functioning of the financial system that can negatively affect the rest of the economy."
Taking the perspective of Economics, Financial Stability is considered a “public good” and systemic risks are the antithesis to stability. As a public good, there is an element of the “Tragedy of the Commons” and, more importantly, externalities exist so that the costs to society of any vulnerability will be larger than the simple sum of the private costs borne by individual entities.
In line with this thrust, Philippine financial authorities, through the FSCC, made publicly available the country's Macroprudential Policy Strategy Framework. This document reflects the Council's thinking, theinstitutional arrangements, as well as the tools that will be used to sustain and enhance the health of the financial system. This health is specifically defined in terms of the system’s resilience against "systemic risks." It also highlights the collaborative nature inherent to the FSCC.
The release of this Framework in July 2020 puts the Philippines among the jurisdictions which subscribe to the best practice of publishing their macroprudential policy frameworks. It also reflects the country’s journey in institutionalizing the pursuit of Financial Stability.
The full document may be downloaded
here. You may also download an easy guide to the Framework