Macroprudential Analysis

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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated August 5, 2020

What is Macroprudential Analysis?

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

How Does Macroprudential Analysis Work?

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 Does Macroprudential Analysis Matter?

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.

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