The goals of macro-prudential supervision (MPS) focus on the macro part of the financial market and financial institutions. It consists of three parts: aggregated micro variables, macro economic variables and financial market index. This study stresses the aggregated micro variables because the macro economic variables are taken charge by the central bank and the market index was well-established. The main goals of MPS are to maintain the financial stability and reduce the systemic risk. Most of the discussion focuses on the latter goal because there is no clear definition of the former one. To reduce the systemic risk, authority should pay attention to decrease the procyclical risk and connection risk. The procyclical risk checks the history of the financial institution and the connection risk examines whether the cross-sections of market are highly intertwined. For both kind of risk, some new indicators serving as the early warning signals need to be designed. MPS mainly focuses on the banking sector. IMF has stipulated two types of indicators: the core and enhanced indicators, where the former is for the banking sector and the latter is for the insurance and security sectors. The focus of the core sector is to stress the capital adequacy ratio. Recently, Basel III has been proposed and MPS is further emphasized. The new Basel III could be stated as the summation of enhanced Basel II and MPS. The capital is again stressed. For example, a SIFI is required to keep more capital. The common tools to check whether the system is too hot or not are credit/GDP and LTV (loan to value). For these two ratios, there are some parameters need to be decided for every country. For example, what is the meaning of “too hot”? Once the system is too hot judging by the credit/GDP ratio, the authority should adopt a tightening policy, such as restricting the additional loans. However, the restrictions should not be applied to all banks with the same criteria but based on the soundness of each bank. Thus, MPS should be used with cautiousness. The securities sectors increasingly discuss the systemic risk. IOSCO has proposed three goals and 38 principles, where the three goals include protecting the investor, ensuring market fairness, transparency and efficiency and lowering the systemic risk. However, for the time being, there is not too much solid operational conclusion about this part. One of the reasons is that securities are already marked to the market. A survey conducted by IAIS in the first half of 2010 on macro-prudential surveillance practices among insurance supervisors shows that: Although most supervisory authorities do not have a formalized definition of macro-prudential surveillance, nearly all of them carry out macro-prudential surveillance activities. And 78% of the members conduct or plan to conduct within the next 12 months analyses of the impact of macroeconomic variables on the insurance market. In order to improve and strengthen the members’ macro-prudential supervision on insurance industry, IAIS specially formulated and passed the insurance core principles of No. 24 (ICP24) in the recent annual meeting held in 2011 October. In ICP24, it is required that each member’s supervisory authority shall identify, monitor, analyze the market and the financial development, as well as possible influence of other insurance companies and insurance market environment factors. By reviewing ICP24, we suggest insurance supervision includes: setting the system for gathering and analyzing information for macro-prudential surveillance, and the supervisor should identify, monitor and analyze market and financial development and other environmental factors that may impact insurers and insurance markets. In addition, we should upgrade our information collecting to group level and worldwide level. Besides, we need to establish the system of supervising the macroeconomic factors which have impacts on insurance market and to create a consulting and coordinating forum to handle these jobs. It is also suggested that the supervisor performs both quantitative and qualitative analysis and makes use of both public and other sources of information, including horizontal reviews of insurers and relevant data aggregation (ICP23). To provide overall macro-prudent supervision market data, the external communication system should be established. ICP24.6 and ICP27 suggested that the supervisor has an established process to assess the potential systemic importance of insurers, including policies underwritten and instruments issued in traditional and non-traditional lines of business. Finally, systemically important insurers will be supervised by higher standards of performance by the Board and Senior Management of such insurers. As to the MPS and supervisory framework among main countries, a twin peak mechanism for financial supervision was established in EU. In the micro prudential supervision, three trans-national and independent European Supervisory Authorities cooperate with the supervisory authorities in each country. In the MPS, European Systemic Risk Board (ESRB) was established to monitor systemic risk in the financial system. ESRB has only the power of issuing suggestions and making risk warnings, rather than directly giving orders. The US formed Financial Stability Overseeing Council (FSOC) to judge whether a non-banking financial company is systemic significant. As a platform of making communication and discussion among institutions, FSOC possesses the power to making non-binding suggestions when jurisdiction conflicts occur. FSOC is chaired by the minister of finance, with members from the Fed, OCC, SEC, CFTC, FDIC, etc. The UK established a macro-prudential regulator, the Financial Policy Committee (FPC) within the Bank of England to monitor and respond to systemic risks. Responsibility of micro prudential regulation was transferring to a new regulator, the prudential Regulation Authority (PRA). In addition, a new conduct of business regulator, the Financial Conduct Authority (FCA) was created. A Memorandum of Understanding and cross-membership of boards among these authorities were set out to ensure efficient coordination. At last, it is proposed that the MPS framework in Taiwan basically includes FSC, CBC, COA, MOF, and FDIC. For FSC, extra work in the future on aggregating the existing micro data and publishing it regularly is suggested. In addition, considering Taiwan’s special condition, it is suggested that CEPD (in charge of analyzing business cycle for the real economy) and MAC (in charge of related affairs across the Taiwan Strait) are also included. Though the existing coordination and communication mechanism with regard to financial stability have already operated smoothly in Taiwan, it is noticed that once some unexpected situation occurs and the above proposed supervisory framework is unable to handle, then the Executive Yen should take charge of the work on macro-prudential regulation directly.
