Abstract

Against the prevailing background of an unusual capital flow reversal which is posing immense challenges to the integration of the region’s banking sector, this study measures macro-prudential instruments affecting the implementation of an integrated financial service industry.

This study is important at times when domestic and country-based financial policies are directed at competing goals. The interaction of macro-prudential policies with other policies, in particular monetary policies and micro-prudential policies is crucial to address systemic risk involved. There is growing recognition that prudential policies tools interact and coordinate with one another.

To utilize multiple instruments seems to provide a greater assurance of effectiveness by tackling risk from various angles. As such, this study also assesses the interactions of the policies. The study also proposes a baseline model to capture systemic risk due to liquidity risk and risk because of currency devaluation.