An analysis of the macro-prudential tools and their impact on Malta

Abstract

The 2007/2008 financial crises brought about a radical change on how to conduct financial regulation and supervision. It was felt the need to shift our attention from a micro-prudential perspective to a macro-prudential perspective where the aggregated effect of all the financial institutions is give much more importance. The setting up of the European Systemic Risk Board (ESRB) and other various authorities along with the application of macro-prudential tools was a major step forward in this fight against systemic risk, always with the ultimate objective of increasing bank‘s resilience and ability to absorb shocks in times of financial difficulty. All this, will increase bank‘s reputation with invertors thus enhancing investor confidence which is a vital ingredient for the smooth functioning of the financial system. Since Malta is an EU member it is has to abide by these new regulations and apply macroprudential tools as to contribute to systemic risk mitigation. The effects that these tools had on Malta both from the industry‘s perspective and from the regulator‘s and supervisor‘s perspective were investigated in this dissertation by interviewing key people from various financial institutions.