The Process of Macroprudential Oversight in Europe
| Author | Peter Sarlin,Henrik J. Nyman |
| Date | 01 November 2015 |
| DOI | http://doi.org/10.1111/1758-5899.12255 |
| Published date | 01 November 2015 |
The Process of Macroprudential Oversight in
Europe
Peter Sarlin
Hanken School of Economics and RiskLab Finland at Arcada
Henrik J. Nyman
Abo Akademi University
Abstract
The 2007–2008 financial crisis has paved the way for the use of macroprudential policies in supervising the financial
system as a whole. This article views macroprudential oversight in Europe as a process, a sequence of activities with
the ultimate aim of safeguarding financial stability. To conceptualize a process in this context, we introduce the notion
of a public collaborative process (PCP). PCPs involve multiple organizations with a common objective, where a number
of dispersed organizations cooperate under various unstructured forms and take a collaborative approach to reaching
the final goal. We argue that PCPs can and should essentially be managed using the tools and practices common for
business processes. To this end, we conduct an assessment of process readiness for macroprudential oversight in Eur-
ope. Based upon interviews with key European policy makers and supervisors, we provide an analysis model to assess
the maturity of five process enablers for macroprudential oversight. With the results of our analysis, we give clear rec-
ommendations on the areas that need further attention when macroprudential oversight is being developed, in addi-
tion to providing a general purpose framework for monitoring the impact of improvement efforts.
Policy Implications
•Macroprudential oversight is a public collaborative process (PCP). PCPs can and should be managed with the same
means as business processes, since they contain the same elements. The basic function of any process is to trans-
form inputs to outputs with the ultimate goal of serving customers.
•While containing the same elements, there are key differences between business processes and PCPs, specifically in
how processes are adapted to serve customers related to indirect and complex feedback loops. Complexity derives
from the fact that PCPs serve the population in its entirety. Further, the feedback loop between the provider and
the customer differs substantially, as it is regulated through an oftentimes democratic system, with politicians serv-
ing as the representative of the customer.
•Concerning macroprudential oversight in Europe, we observe in this study that ‘process design’and ‘process met-
rics’exhibit the lowest levels of readiness. There seems to be an agreement with regard to the challenges in this
area. The ‘process performers’enabler exhibits a relatively high level of readiness but with some disagreement in
comparison to design. Analytics to steer process metrics, as well as the ‘process infrastructure’and ‘process owner-
ship’enablers, exhibit an average level of readiness, but with larger dissensus. Despite agreement on the existence
of a process owner, the lack of consensus on the ownership is especially alarming.
•We have provided a general purpose framework for assessing process readiness. The framework lends itself to reg-
ular updates of the assessment of process readiness, enabling monitoring the impact of improvement efforts over
time. Likewise, this framework is far from bound to the region under analysis in this paper, such as assessments of
the state of macroprudential oversight in the US and UK.
“Putting in place this emerging framework for financial
stability will be difficult. As we have seen, it requires
new consensus and tools, but it also requires addi-
tional resources, better data, time, and international
cooperation to enable us to take timely action.”
Jaime Caruana,
General Manager of the BIS, Washington DC, 23
April 2010
Global Policy (2015) 6:4 doi: 10.1111/1758-5899.12255 ©2015 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 6 . Issue 4 . November 2015 389
Research Article
1. Macroprudential oversight as a process
The current financial crisis has highlighted the impor-
tance of a system-wide, or macroprudential, approach to
safeguarding financial stability (e.g., Borio, 2011). Rather
than being only concerned with the stability of individual
financial institutions, it involves the tasks of preventing
and mitigating systemic risks to avoid widespread finan-
cial distress and at the same time also consider eco-
nomic growth (e.g., ESRB Regulation, Article 3(1)). Given
these aims, macroprudential oversight can be viewed as
a process, which exhibits inherent complexity. In the case
of macroprudential oversight in Europe, the system of
financial supervisors includes a large number of actors
both at the European and national level, with a common
goal of safeguarding financial stability. With the Euro-
pean System of Financial Supervisors (ESFS) currently in
the making (e.g., EU Commission, 2009a, b), now is the
time to understand activities, define responsible entities
and discern how the actors interact. Ongoing public and
academic discussion has targeted individual aspects,
which oftentimes concern roles of individual institutions,
such as legal challenges (e.g., UK vEuropean Securities &
Market Authority (ESMA) and Germany vbanking union),
the mandate within central banks or politicians (Issing,
2009), the role of central banks within the European
Systemic Risk Board (ESRB) (Goodhart, 2011), European
Central Bank (ECB) as a lender of last resort in the gov-
ernment bond market (De Grauwe, 2013), and a role of
the European System of Central Banks in euro area vs
the ESRB in Europe (Schoenmaker, 2013). Despite these
important discussions, little consideration has been given
to the inner workings and broad underpinnings of mac-
roprudential oversight at large. In this vein, this article
takes a comprehensive approach to assessing macropru-
dential oversight in Europe through a process perspec-
tive.
Process management concerns the analysis and
improvement of ways of working through systematic rep-
resentations of organizations’processes (e.g., Segatto, de
P
adua and Martinelli, 2013). This provides means not
only for representing current ways of working, but also
for reaching consensus on what form the process should
take and possible areas of improvement (e.g., Hammer,
2010; Eikebrokk et al., 2011). Yet, this describes the func-
tioning and optimization of processes from the viewpoint
of a single organization. In the public sector, processes
may be of a different nature. They may involve multiple
organizations with a common objective, where the actors
take a collaborative approach to reaching the final goal.
We denote these as public collaborative processes (PCPs).
PCPs involve a number of dispersed organizations coop-
erating under various unstructured forms. For instance,
public health may involve activities ranging from nutri-
tional health advice to the services of both private and
public health care centers and hospitals. While being of a
different nature, in this paper we argue that PCPs can
and should still be examined through the lens of process
management.
Macroprudential oversight has been described as a
process comprising the following high-level tasks (e.g.,
ECB, 2010): risk identification, risk assessment and risk
communication, as well as the assessment and imple-
mentation of policies. While being relatively well-defined
at this level, the tasks still involve a number of uncertain-
ties and limitations that challenge the functioning of the
process. At a more detailed level, the process is among
other things characterized by a large number of involved
actors, a national and supranational level, an inherent
political dimension, vast amounts of data, and decision-
making based upon expert judgment and numerical
methods. Further, macroprudential oversight exhibits a
high degree of dependence between and within tasks as
in any process. Given the aim of process management, in
which activities are to be coordinated so that dispersed
tasks performed by many different partners act as one
seamless process, concerns can be raised about the
functioning of the European macroprudential oversight
process (as noted in the first paragraph).
Understanding dependence within the tasks becomes
particularly crucial when moving towards a more detailed
representation of the process, which is the essence of
process management. However, an essential prerequisite
for detailing and documenting a process is a common
agreement of the activities at the focus of attention and
the roles of all involved parties, i.e., who is doing what.
This is the case also for processes that rely on collabora-
tion between dispersed organizations and functions, such
as in the case of macroprudential oversight. As a prere-
quisite for process management, this article examines
the maturity of the macroprudential oversight process
through various constructs, such as process design, met-
rics and ownership. As such, by identifying areas of
improvement and directing attention at needs, this work
lays the foundation for reaching a more mature process
for safeguarding financial stability.
With the aim of assessing the maturity of macropru-
dential oversight in Europe, this paper conducts an inter-
view study and builds an analysis model. The study
includes interviews with 23 key policy makers and super-
visors from 12 organizations involved in macroprudential
oversight across Europe. The interviewees were asked a
series of questions relating to macroprudential oversight
in Europe, which were mapped to five so-called process
enablers (Hammer, 2007, 2010). The answers were used
to assess the maturity of macroprudential oversight in
relation to (1) design, (2) metrics, (3) performers, (4) infra-
structure, and (5) ownership of the process. We provide
©2015 University of Durham and John Wiley & Sons, Ltd. Global Policy (2015) 6:4
Peter Sarlin and Henrik J. Nyman
390
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