APRA's macro-prudential toolkit DOES NOT include...

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BlackTom AI · Accepted Answer

The question asks which item APRA's macro-prudential toolkit DOES NOT include. Let's evaluate each option in turn.

Option 1: Lending limits. In many macro-prudential frameworks, authorities set lending limits or caps on credit growth or on particular types of lending to curb systemic risk. This option is consistent with macro-prudential tools used by APRA, so it is plausible that lending limits are included in the toolkit.

Option 2: Exposure limits. Exposure limits refer to limits on the amount of risk an institution can take with a single counterparty or sector, helping to manage concentration risk. This kind of instrument is commonly part of macro-prudential toolkits and would be a reasonable inclusion for APRA.

Option 3: Overseas branches. This item refers to branches of banks located overseas. Macro-prudential policy typically focuses on domestic financial system stability and instruments applied within the home jurisdiction to domestic banks and activities. While cross-border supervision is important, overseas branches themselves are not usually categorized as a macro-prudential instrument within a regulator’s toolkit; they pertain more to international supervision and international banking arrangements rather than a tool like a cap or buffer applied domestically. Therefore, this option stands out as a candidate that is not part of the macro-prudential toolkit.

Option 4: Countercyclical capital buffers. Countercyclical capital buffers are a classic macro-prudential instrument designed to build capital during credit booms and release it in downturns, reducing systemic risk. This is a standard tool in many jurisdictions' macro-prudential arsenals, including discussions around APRA's framework, so it would be expected to be included.

In summary, the options about lending limits, exposure limits, and countercyclical capital buffers align with common macro-prudential tools used to enhance system resilience. The item concerning overseas branches is less aligned with a domestic macro-prudential toolkit, as it pertains more to cross-border structure rather than a domestically applied macro-prudential instrument.

This reasoning walks through each choice, highlighting why some fit typical macro-prudential roles and why the overseas branches item differs in scope and application compared with the others.

25751 Financial Institution Management - Spring 2025 Week 11 Quiz

APRA's macro-prudential toolkit DOES NOT include...

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