Macroprudential Analysis

AAA

DEFINITION of 'Macroprudential Analysis'

A method of economic analysis that evaluates the health, soundness and vulnerabilities of a financial system. Macroprudential analysis looks at the health of the underlying financial institutions in the system and performs stress tests and scenario analysis to help determine the system's sensitivity to economic shocks. Macroeconomic and market data are also reviewed to determine the health of the current system. The analysis also focuses on qualitative data related to financial institutions' frameworks and the regulatory environment to get an additional sense of the strength and vulnerabilities in the system.

INVESTOPEDIA EXPLAINS 'Macroprudential Analysis'

When looking at the health of the underlying financial institutions in the system, macroprudential analysis uses indicators that provide data on the health of these institutions as a whole including capital adequacy, asset quality, management performance, profitability, liquidity and sensitivity to systematic risks. Macroeconomic data used includes gross domestic product (GDP) growth rates, inflation, interest rates, balance of payments, exchange rates, asset prices and the correlation of markets within the system. Finally, macroprudential analysis looks at key components of the financial markets, including prevailing credit ratings and the yields and market prices of financial instruments.

Scenario analysis and stress tests are major component of this analysis. For example, the analysis may look at how the system would cope with a steadily declining currency value and its impact on GDP, interest rates and underlying institution profitability.

RELATED TERMS
  1. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  2. Balance Of Payments (BOP)

    A record of all transactions made between one particular country ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
RELATED FAQS
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Investing During Uncertainty

    The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up.
  2. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  3. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  6. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  7. Economics

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  8. Investing

    What Has Been Groupon’s Growth Strategy?

    Groupon established a strategy with efforts to become a broader force in the e-commerce world and to expand more strongly into international markets.
  9. Economics

    The Impact Of Ending The US Embargo On Cuba

    Many argue that ending the US embargo on Cuba will not only make US consumers happy, but also help the US economy and bring more freedoms to Cuba.
  10. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center