Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Macroprudential Analysis

What it is:

Macroprudential analysis is analysis of the stability of an economy's financial institutions.

How it works (Example):

In the United States, stress tests are the most common example of macroprudential analysis. In that analysis, the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) evaluates 19 large national banks to determine whether those institutions have enough capital to weather a deep recession, significant declines in asset prices, and a slowdown in global economic activity. Although the Federal Reserve expects lending institutions to suffer losses under those conditions, the question is whether those losses are deep enough to jeopardize the institutions' ability to stay in business.

Why it Matters:

Macroprudential analysis is designed to give analysts and leaders an idea of how resilient an economy is. Resilience is a measure of health, which is why macroprudential analysis gives an idea of how strong an economy is and where its vulnerabilities are. Mechanically speaking, this kind of analysis usually involves sophisticated statistical modeling.