The Unassuming Economist

From the IMF’s latest report on the Euro Area:

“Macroprudential policies should be used more actively to manage financial vulnerabilities in both housing and corporate sectors. France, for example, has tightened large exposure limits for big French banks lending to highly indebted corporates, and some countries have increased their countercyclical capital buffers. However, bank-based tools cannot address risks arising from nonbank loans. As recommended in the 2018 FSAP, borrower-based tools could be legislated where they are currently unavailable, and used more proactively against risky firms and households. In particular a range of borrower-based tools for corporates (such as limits on loan-to-value ratios for commercial real estate, debt/equity caps and minimum ICRs) should be explored, and national macroprudential supervisors should have the authority to use these tools for all financial institutions. The authorities should also monitor liquidity risks in investment funds that are increasingly exposed to lower-grade corporate debt and real estate in search for yield. In order to be effective, comprehensive and comparable credit information systems need to be available in all countries. Urgently addressing data gaps in the area of commercial real estate and nonbank financial institutions is also needed to allow a fuller assessment of financial stability risks.”