Macroprudential Analysis

Written By
Paul Tracy
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.