The term macroprudential at that time became popular in the financial sector after the global financial crisis in 2008. The global financial crisis in 2008 has provided very valuable lessons for us, especially the people of Indonesia.
Although not directly, Indonesia was still affected by the 2007/2008 global financial crisis which was triggered by product failures subprime mortgage in the United States. Overall, macroprudential policies have become a virtue of an integrated Bank Indonesia, but after the economic crisis in 2008 it became a concern and much discussion about how to implement policies in an integrated and systematic manner.
The 2008 financial crisis that caused almost the entire world to experience financial stress was caused by several things, including: Imbalance in capital flow deviations between countries & inadequate supervision of financial regulations & monetary policy in many countries (Bank Indonesia, 2015).
Prior to the 2008 crisis, the monetary policy carried out put more emphasis on several portfolios that did not systematically support macroprudential policies. Where the financial system before the 2008 crisis was more reliant on monetary & microprudential policies that regulate individuals who have funds which are an acceleration catalyst in encouraging economic growth (Claessens, 2015).
Macroprudential policies that became popular after the 2008 global economic crisis have actually been discussed since the 1970s, but have not been widely applied since the 2008 global financial crisis, which had a negative impact on the world's economic downturn due to cause-and-effect relationships (feedback loop), between the financial sector and the real sector resulted in high crisis costs with a long recovery time.
Macroprudential policy is defined as a policy that aims to limit the risks and costs of a systemic crisis or the risk of financial system failure (Galati G., and Richhild M., 2011). According to the IMF, macroprudential policy must cover at least 3 things: maintaining financial system stability, being oriented towards the overall financial system (system-wide perspectives) and limit the occurrence of systemic risk (IMF, 2011).
Maintaining financial system stability in this perspective is not only done by Bank Indonesia alone. Mutual assistance between the authorities concerned is very influential in maintaining the stability of this system so that it survives at any time when there is an economic shock.
Bank Indonesia as the central bank through monetary, macroprudential and payment system authorities; government through fiscal authority; and service industry regulatory authorities financial institutions such as OJK & LPS through microprudential authority, so that the implementation of macroprudential policies is very possible through interaction with other clear policies where all policy decisions are made, especially with policies that have an impact on the financial system (Bank Indonesia, 2015).
The financial system in particular must be able to support several policy functions including: performing intermediation functions, risk management in the financial system and facilitating payment system operations (Schinasi, 2004).
Bank Indonesia itself as the monetary, banking and payment system authority, Bank Indonesia's main task is not only to maintain monetary stability, but also financial system stability (banking and payment systems). The success of Bank Indonesia in maintaining monetary stability without being followed by financial system stability will not mean much in supporting sustainable economic growth. Monetary stability and financial stability are inseparable. Monetary policy has a significant impact on financial stability and vice versa, financial stability is a pillar that underlies the effectiveness of monetary policy. On the other hand, monetary instability will fundamentally affect financial system stability due to the ineffective functioning of the financial system.