Macroprudential policy aims to safeguard a sound financial system and help mitigate disruptive financial cycles.

It also highlights the lack of policy options available to alleviate system-wide risk that can build up within a financial system. As a result, macroprudential policy has gained importance within policy agendas. Its aim is to keep the whole financial system stable. Financial system stability is important for sustained long-term economic growth. Even with sound macroeconomic fundamentals, weak financial systems can destabilise economies, making them more vulnerable to external shocks. Close monitoring between the financial sector and the real economy is therefore crucial.

In South Africa, the Financial Sector Regulation Act 9 of 2017 as amended made the SARB responsible for monitoring and reviewing risks to financial stability, and for taking steps to mitigate systemic risk. A risk is systemic if its occurrence impairs the financial system so much that key financial services are disrupted, which can severely affect the real economy. The SARB’s macroprudential policy framework focuses on macroprudential instruments designed to limit various aspects of this risk.

Macroprudential policy at the SARB aims to:

  • strengthen the resilience of the financial system to economic downturns and other adverse aggregate events; and
  • limit the build-up of financial risks to reduce the probability or the magnitude of a financial downturn.

The SARB’s assessment of systemic risk focuses on identifying structural and cyclical vulnerabilities within the economy that could amplify and propagate negative economic events. This is achieved by monitoring and assessing indicators of risk and the build-up of imbalances in the system.

  • Time-varying or cyclical risks relate to the evolution of total risk in the financial system over time. These cyclical risks refer to the tendency of financial firms, companies and households to accept excessive risks during the upswing of credit cycles and then to become excessively risk-averse in the downswing. This cyclical risk can amplify the effect of adverse aggregate events because of the interactions between excessive credit growth, asset price bubbles, excessive leverage and maturity mismatches.
  • Structural or cross-sectional risks relate to the distribution of aggregate risk across the financial system at a point in time. The cross-sectional risks would refer to the direct and indirect linkages across the financial system. The effect of adverse aggregate shocks can be amplified through contagion, moral hazard, and the opacity and complexity of financial institutions, markets and products.
Figure 1: The SARB’s macroprudential policy framework
SARB’s macroprudential policy framework

The SARB’s financial stability monitoring framework includes analyses of risks relating to global developments, asset markets, systemically important financial institutions, non-bank financial intermediaries and the non-financial sector. Within each of these areas, risks are considered using indicators that assess the build-up of imbalances in the financial system.

Macroprudential indicators, however, can also provide false signals, so they should be interpreted with caution when used to formulate policy. The set of indicators that the SARB uses is likely to vary over time as circumstances change and new risks emerge. The current indicators are analysed in the SARB’s biannual Financial Stability Review.

While monetary policy targets price stability, macroprudential policy targets financial stability. However, unlike conventional monetary policy, which focuses on a single intermediate target of headline consumer price index inflation of 3-6%, macroprudential policy focuses on a variety of intermediate targets depending on which particular market failure is posing a systemic risk. These include:

  • reducing excessive growth in credit, asset prices and leverage;
  • reducing excessive lending and funding maturity mismatches;
  • reducing direct and indirect concentrated exposure to the same markets, products and institutions;
  • ensuring liquidity in the market; and
  • reducing ‘moral hazard’, which refers to an expectation from institutions that they can increase their risk exposure as government will bail them out.


Macroprudential instruments are policy tools that are intended to target sources of systemic risk. The selection and implementation of macroprudential instruments need to be guided by three main criteria, namely the effectiveness, efficiency and transparency of the instruments. Firstly, for the effective implementation of macroprudential instruments, the focus needs to be on instruments with well-understood transmission mechanisms. Secondly, the efficiency of the instruments is assessed by their ability to avoid any unintended consequences and adverse effects. Thirdly, decision-making and actions taken should be transparent. The application of the above-mentioned criteria would enhance the understanding, ease of communication and process of administering macroprudential policies.

Macroprudential instruments are generally classified in three categories, namely capital-based instruments (e.g. countercyclical capital buffers, sectoral capital requirements and dynamic provisions); asset-side instruments (e.g. loan-to-value (LTV) and debt-to-income (DTI) ratio caps; e.g. liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). Figure 2 provides a list of examples of macroprudential instruments that have been implemented in other jurisdictions and their potential indicators.


Figure 2: Policy instruments and potential indicators
Policy instruments and potential indicators

Regardless of the type of instruments, macroprudential policy cannot rely solely on a fixed set of rules. It must be based on a continuous assessment of risks and is best supported by guided discretion. Key indicators help signal when intervention or adjustments may be appropriate, but the decision to intervene is based on informed judgment. Once a decision has been made, the tools need to be ready to use, so all operational aspects should be considered in advance.

The SARB is prioritising its work on the macroprudential toolkit. The Financial Stability Committee may also consider other tools that may be important to address imminent specific risks.

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