macroprudential tools

Macroprudential tools are policies used by financial authorities to strengthen the stability of the entire financial system. They aim to prevent risky behaviors and reduce the chances of widespread crises by managing large-scale vulnerabilities. Examples include setting limits on how much banks can lend relative to their capital (loan caps), requiring banks to hold extra capital reserves, or controlling growth in certain risky lending sectors. These tools help ensure that financial institutions remain resilient during economic ups and downs, protecting the economy and consumers from potential financial shocks.