Macroprudential Policies : Turkish Experience

1
Macroprudential Policies Turkish Experience

• Murat Çetinkaya
• Deputy Governor

• November 7, 2013
• Istanbul

2
Contents

1. Macro-prudential Policies Rule-Based vs.
   Discretionary
2. Macroprudential Policy Framework in Turkey
3. Turkey How did we do so far?
4. Conclusion

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Macro-prudential PolicIESRULE-BASED vs.
discretionary
4
Systemic Risk

• Post-Lehman challenge Re-orienting prudential
  regulation towards containing systemic risk
• We will amend our regulatory systems to ensure
  authorities are able to identify and take account
  of macro-prudential risks across the financial
  system
• G - 20 Declaration on Strengthening the
  Financial System, 2 April 2009

5
Macro-prudential Policy

• Aim at addressing systemic risk with ways to
• Measure and assess accumulation of risk (system
  wide)
• Avoid boom bust cycles (in supply of credit and
  liquidity)
• Handle risks related with interconnectedness
  (spill-over)

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Macro-prudential Policy

• Two dimensions
• Cross-sectional dimension Risk distribution at
  a point in time (across sectors/agents)
• Time dimension Evolution of aggregate risk in
  the system

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Macro-prudential Policy

• The framework should aim to achieve
• Transparency
• Accountability
• Predictability

8
Macro-prudential Policy

• Rule-Based
• Transparent, lower risk of inaction
• Provide pre-commitment
• Provide regulatory certainty
• Not dynamic and flexible
• Susceptible to circumvention
• Discretionary
• Adaptable and flexible
• Takes into account different types of risks and
  structural changes
• Less transparent
• Limited regulatory predictability
• Subject to forbearance in favor of wrongdoers

Source IMF Staff Analysis
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Macro-prudential Policy

• Fixed
• Provide a minimum buffer
• Low administrative cost
• Ineffective in rapidly changing circumstances
• Time-Varying
• Avoid timing the cycle (automatic stabilizers)
• Lean against the wind, countercyclical
• Ad hoc and frequent changes may be disruptive
• Hard to time the cycle, danger of staying behind
  the curve

Source IMF Staff Analysis
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Rules vs. Discretion

• Rule-based or discretionary macroprudential
  policy?
• A rule-based counter-cyclical framework with
• constrained discretion at
  turbulent times.

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Macroprudential Policy Framework in Turkey
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Policy Framework
Old Approach New Approach
Objectives Price Stability Price Stability Financial Stability
Policy Tools Policy Rate Structural Tools Cylical Tools
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Structural Tools by CBRT

• Maturity Based Reserve Requirements
• Currency Based Reserve Requirements
• Leverage Based Reserve Requirements
• Reserve Options Mechanism

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Maturity Based Reserve Requirements
Non-Core Liabilities Non-Core Liabilities
M lt 1 year M gt 1 year
TL 11.5 6.4
M lt 3 years M gt 3 years
FX 12.8 6
Core Liabilities Core Liabilities
M lt 1 year M gt 1 year
TL 11.1 5
FX 13 9
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Currency Based Reserve Requirements

• TL Reserve Requirements

• FX Reserve Requirements

• Source CBRT.

• Source CBRT.

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Leverage Based Reserve Requirements
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Reserve Option Mechanism

• FX ROM Utilization Ratio(Percent)

• Gold ROM Utilization Ratio
• (Percent)

• Source CBRT.

• Source CBRT.

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Cylical Tools by CBRT

• Policy Rate
• Interest Rate Corridor
• TL Liquidity Management
• FX Liquidity Management

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Liquidity Policy

• Interest Rate Corridor and Average Funding Rate
• (Percent)

• TS Tapering Signal
• Last observation 30.10.2013

• Source BIST, CBRT.

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Liquidity Management

• CBRT Funding
• (Billion TRY)

• Source CBRT

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Macroprudential Measures by BRSA

• Levy on Consumer Loans
• Loan-to-Value Restrictions
• Risk Weight on Consumer Loans
• General Provisioning Requirements

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Recent Policy Actions

• With the amendments on 8 October 2013, new
  regulations have been declared with regards to
  both corporate and retail loans.
• Amendments made in retail loans related to
• Credit Card Limits
• Minimum Payment Ratios
• Risk Weights in CAR
• A new tool in MP policy Loan-to-Income Ratio

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Turkey How did we do so far?
24
Rebalancing Current Account

• Current Account Deficit(12-Month Rolling,
  Billion USD)

• Source CBRT.

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Rebalancing Credit Growth

• Total Loan Growth Rates (YoY Change, Percent)

• Source BRSA.

• Total credit is inclusive of all types of banks
  (deposit banks, participation banks, and
  development/investment banks) and credit cards.

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Quality of Capital Inflows

• Main Sources of Current Account Deficit
  Finance(12-Month Cumulative, Billion USD)

• Long term capital movements are sum of banking
  and real sectors long term net credit and bonds
  issued by banks and the Treasury.
• Short term capital movements are sum of banking
  and real sectors' short term net credit and
  deposits in banks.

• Source CBRT.

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Maturity of Deposits

• Weighted Average(Days)

• Source CBRT.

• Last observation 25 October 2013

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CBRT International Reserves

• Composition of Reserves(Billion USD)

• Source CBRT.

• Last observation 25 October 2013

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Exchange Rate Volatility

• Selected EMEs(Percent, Next 12 months implied
  volatility)

• EMEs Brazil, S.Africa, Indonesia, India, Turkey.

• Source Bloomberg, CBRT.

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CONCLUSION
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Conclusion

• A rule-based approach with constrained discretion
  at certain phases of cycles seems to be the best
  approach in conducting macroprudential policies.
• The implementation of macroprudential policies
  yield pre-commitment and credibility as well as
  dynamism and flexibility to the policy-making.
• Macroprudential and monetary policy instruments
  in EMEs need to be used appropriately in order to
  minimize the impact of associated volatility in
  capital flows.

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Conclusion

• Macroprudential policies aim at improving the
  resilience of the financial system. They should
  be supported with structural reforms.
• Productivity enhancing structural reforms
  constitute the main drivers of economic growth in
  Emerging Market Economies.
• The Central Banks contribution to growth in
  Turkey is via ensuring price stability and
  contributing to the financial stability.

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Macroprudential Policies Turkish Experience

• Murat Çetinkaya
• Deputy Governor

• November 7, 2013
• Istanbul