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Emerging Asia needs stronger macroprudential policies to mitigate the risks from climate change and the rise of Fintech

 

Paris, 29 June 2021 – Macroprudential policy is on the rise in Emerging Asia, and it has an important role to play in supporting the transition to a low-carbon and digital economy, says the OECD Development Centre in its report Strengthening Macroprudential Policies in Emerging Asia: Adapting to green goals and Fintech, released today.

The report provides a comprehensive overview of the region’s experience with macroprudential policy - measures aiming to reduce systemic risk and maintain stability of the financial system - since the mid-1990s. Policy authorities in Emerging Asia enacted such measures in the aftermath of the two major financial crises that affected the region over the past decades. More recently, several countries transposed the Basel III banking regulation reform into their national legislation, and overhauled their macroprudential institutions and configurations.

The report identifies the main challenges that authorities in Emerging Asia may encounter in delivering such policies effectively, and formulates recommendations to overcome them:

  • when assessing the effectiveness of macroprudential policies, give due consideration to its complex interlinkages with monetary policies
  • take account the increase in interconnections between bank and non-bank intermediaries
  • give due consideration to cross-border effects
  • target macroprudential policies optimally in order to avoid moral hazard
  • factor in the consequences of the COVID-19 crisis
  • carefully design the framework for measuring a country’s macroprudential stance

The risks associated with climate change could severely destabilise the financial systems in Emerging Asian countries. Central banks thus need to take resolute action and policy makers need to amend or expand their macroprudential policy toolkits in order to tackle the systemic risks that are related to climate change, and support low-carbon investments. Policy options include the integration of climate-related risks into macroprudential stress tests. They also include instruments that can effectively limit the amount of bank lending to high-carbon sectors, while redirecting credit flows to climate-friendly investments.

The rise of financial technology - Fintech- also brings new challenges, including: riskier behaviour; more volatility in the sector; and disintermediation. To address these, Emerging Asia countries should strengthen macroprudential policies to bring Fintech firms inside the regulatory perimeter. Moreover, to avoid risks associated with the cross-border nature of Fintech activities, regulators should increase co-operation through regulatory convergence.


 

Journalists are invited to contact Kensuke Tanaka, Head of the Asia Desk at the OECD Development Centre (Kensuke.Tanaka@oecd.org, +33 6 27 19 05 19), or Bochra Kriout at the OECD Development Centre’s Press Office (Bochra.Kriout@oecd.org, +33 1 45 24 82 96).

 

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