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Mandate of macroprudential policy: recommedation for Ukraine
eni V. N. Karazina (Serija: Jekonomicheskaja)- H.: HNU imeni V. N. Karazina, 2014 - № 1118 - Vyp. 88 - S. 84-90.
6. Glushchenko O. V. Methodological aspects of the research of the public finance of Ukraine: resistance, flexibility and fragility/O. V. Glushchenko//Institutional framework for the functioning of the economy in the context of transformation: Collection of scientific articles. - Publishing house «BREEZE», Montreal, Canada, 2015. - 344 p. P. 167-173.
7. Hrytcenko A. Systemna kryza jak naslidok bazovoi’ destrukcii’ ekonomiky Ukrai’ny i shljahy i’i’ podolannja/A. Hrytcenko//Visnyk Nacional’nogo banku Ukrai’ny - 2014. - № 5. - S. 8-12.
8. Cina derzhavy [Elektronnyj resurs]. - Rezhym dostupu: http://cost.ua/ - Zagolovok z ekranu: http://cost.ua/budget/debt
9. Derzhavnyj ta garantovanyj derzhavoju borg Ukrai’ny za stanom na 31.12.2014 Oficijnyj ministerstva finansiv Ukrai’ny [Elektronnyj resurs]. - Rezhym dostupu: http://www.minfin.gov.ua - Zagolovok z ekranu: http://www.minfin.gov.ua/file/link/410420/file/Debt_31.12.2014.pdf
10. Bjudzhetnyj monitoryng: Analiz vykonannja bjudzhetu za 2014 rik Oficijnyj sajt Instytutu bjudzhetu ta social’no-ekonomichnyh doslidzhen [Elektronnyj resurs]. - http://shshsh.ibser.org.ua/Rezhym dostupu: http://shshsh.ibser.org.ua/neshs/558
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Nikonova Maryna Vyacheslavivna, Senior economist of macroprudential policy division, Financial Stability Department, National Bank of Ukraine, PhD E-mail: maryna.nikonova@gmail.com
Mandate of macroprudential policy: recommedation for Ukraine
Abstract: At the present stage of financial system development, the process of reforming the system of regulation and supervision are currently being continued. The main purpose of this reforming is creating the conditions for adequate assessment of systemic risks and implementation of macroprudential policy. A well-defined policy framework is a necessary condition for effective macroprudential policy. In the article, the current level institutional arrangements in Ukraine is assessment. The basic principles to assign the macroprudential mandate in Ukraine are grounded.
Keywords: macroprudential policy, mandate of macroprudential policy, macroprudential institutional arrangements, model for macroprudential policymaking.
The lack of adequate attention to the risks of the financial system as a whole, incapable of counteract such risks and lack of a clear division of responsibilities, respectively, of responsibility between authorities were among the main causes of the global financial crisis. Understanding of this fact led to the implementation of post-crises reform of financial sector regulation and supervision in most countries. The key role of regulation and supervi-
sion should be limited to prevent crises and mitigate their impact.
Today at the international and national levels, the activities to create foundations to ensure the stability of the financial system as a whole. As a part of this activity is the establishment of completely new policy areas — macroprudential policy, which aims to identify, analyze and counter risks to the financial system as a whole, as opposed to traditional micro-
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Section 3. Finance, money circulation and credit
prudential regulation and supervision, the focus is exclusively focused on the risks of individual institutions. Thus, the main purpose of macroprudential policy is to promote the stability of the financial system as a whole.
In many countries for purpose to ensure the implementation of macroprudential policy the process of building institutional mechanism that can effectively develop and implement macroprudential policy are continuing.
The development and implementation of macroprudential policy in Ukraine should be carried out in view of the latest world trends in this area and to consider the basic principles for the development and implementation of macroprudential policies recommended by international organizations. In nowadays, the European Systemic Risk Board (ESRB) developed a number of recommendations for implementing macroprudential policy practices, in particular those recommendations concerning the need: securing macro-prudential mandate of national authorities for the regulation and supervision and determination of intermediate targets and instruments of macroprudential policy.
The proper implementation of macroprudential policy is impossible without a clear endowed with the appropriate powers of regulation and supervision of the appropriate macroprudential authority.
According to the ESRB macroprudential mandate, the basic components of macroprudential mandate are the following [4]:
• Objective (ultimate objective of macro-prudential policy is to contribute to the safeguard of the stability of the financial system as a whole, including by strengthening the resilience of the financial system and decreasing the buildup of systemic risks, thereby ensuring a sustainable contribution of the financial sector to economic growth);
• Institutional arrangements (designate in the national legislation an authority entrusted with the conduct of macroprudential policy. Ensure that the central bank plays a leading role in the macroprudential policy).
• Tasks, powers, instruments (the tasks of identifying, monitoring and assessing risks to financial stability and of implementing policies to achieve its objective by preventing and mitigating those risks).
• Transparency and accountability (power to make public and private statements on systemic risk; ultimately accountable to the national parliament).
• Independence (as a minimum operationally independent, in particular, from political bodies and from the financial industry; organizational and financial arrangements do not jeopardize the conduct of macroprudential policy).
Ukraine has already made some steps toward building an institutional mechanism to implement macroprudential policy. Thus was set up the Financial Stability Board, which aims to identification of financial system stability risks and prepare recommendation to minimize these risks.
Also within the National Bank of Ukraine has launched the Financial Stability Committee, which is designed to develop suggestions and recommendations on the policy development and implementation of macroprudential policy of the National Bank of Ukraine and its structural subdivisions.
In addition, the Law On the National Bank of Ukraine defines that the National Bank within its power contributes to financial stability, including stability of the banking system, provided that if does not prevent the achievement of goals — to maintain price stability.
According to the macroprudential mandate recommendation of ESRB and in view of the current situation in Ukraine (function of the Financial Stability Board), we suggests to give the explicit mandate to the National Bank of Ukraine. For this purpose, it is advisable to clearly define basic components of the macroprudential mandate.
In the broadest sense, mandate means the powers are enshrined in law by the authority on the implementation of certain activities.
As defined in Key aspects of macroprudential policy [2] there are two basic principles of mandate assignment. To strengthen ‘willingness to act,’ it is important that the macroprudential mandate is assigned to someone, a body or a committee (IMF, 2011a). Where a clear assignment is lacking, collective action problems lead to underinvestment in systemic risk identification and mitigation across agencies and reduce accountability, since in the end no one is fully responsible for the crisis outcome. It is desirable for the central bank to play an important role in macroprudential policy (IMF, 2011a; Nier
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Mandate of macroprudential policy: recommedation for Ukraine
and others, 2011; IMF, 2013a; Vinals, 2011). This can harness the expertise of the central bank in systemic risk identification and its incentives to ensure macroprudential policy is pursued effectively. It can also help shield macroprudential policymaking from political interference that can slow the deployment of tools or bias their use toward other objectives.
In practice, these two basic principles lead to the increasing prevalence of three models for macroprudential policymaking [2]:
— Model 1: The macroprudential mandate is assigned to the central bank, with macroprudential decisions ultimately made by its Board (as in the Czech Republic).
— Model 2: The macroprudential mandate is assigned to a dedicated committee within the central bank structure (as in the U. K.).
— Model 3: The macroprudential mandate is assigned to a committee outside the central bank, with the central bank participating on the macroprudential committee (as in Australia, France and the U. S.).
The efficiency of macroprudential mandate is defined mandate clarity formulation of objectives, functions and powers.
Regardless of the model for macroprudential policy according to the ESRB recommendation [4] “the national central banks should have a leading role in macro-prudential oversight because of their expertise and their existing responsibilities in the area of financial stability” This conclusion is further strengthened when central banks are also in charge of microprudential supervision.
The world experience shows that if the Committee (Council/Board) is setting up outside the central bank the leading role of the central bank is achieved, for example, by the:
— the authority to preside Central Bank (Australia);
— the preferred voting (Mexico);
— veto representative of the Central Bank (Germany);
— the central bank exclusive right to make proposals for macroprudential instruments (France).
In our opinion, the exception in this case may be only the one — institutional arrangements of country provides for activities separate authorities (separated from the central bank) responsible for microprudential supervision (Sweden, Poland). In this case, the mandate of macroprudential policy advisable to assign to the macroprudential authority.
Thus, we suggest to give the legal explicit mandate of macroprudential policy to a National Bank of Ukraine. In this case, we support position [1] central banks have a mandate for price stability as well as financial stability. Both mandates steer the overall economy, though with differing objectives.
For this purpose, it is necessary to specify macroprudential goal in the Law On National Bank of Ukraine [3]. This clarification should come from the need to consolidate the independence of such policy and eliminate all conditions, which may depend on the implementation of macroprudential police.
Also important provide in the Law On National Bank of Ukraine the definition of macroprudential function (identification of systemic risk; implementation of macroprudential instruments; realization of macroprudential regulation and supervision) and macroprudential powers [2]: rule-making powers involves determining: a list of tools that can be used; and the order of tools application (calibration of policy instruments, development of new tools macroprudential policy etc.): powers of receiving information; powers of macroprudential supervision; powers of macroprudential regulation.
Thus, further work in this field should focus on creating an appropriate legislative framework and developing the methodology of applying macroprudential tools in Ukraine.
The views expressed herein are those of the author and can therefore in no way be taken to reflect the official opinion of the National Bank of Ukraine.
References:
1. DSF Policy Paper Series Macroprudential Policy: The Need for a Coherent Policy Framework Dirk Schoenmaker and Peter Wierts July 2011 DSF Policy Paper, No. 13 б - [online]: http:// www.dsf.nl/wp-content/uploads/2014/10/DSF-policy-paper-No-13-Macroprudential.pdf
2. Key aspects of macroprudential policy//IMF. - July 2013. - [online]: https://www.imf.org/ external/np/pp/eng/2013/061013b.pdf
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Section 3. Finance, money circulation and credit
3. Law On National Bank of Ukraine № 679-XIV, 20/05/1999. - [online]: http://zakon5.rada.gov. ua/laws/show/679-14
4. Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3) - [online]: http://www.esrb.europa. eu/pub/pdf/ESRB_Recommendation_on_National_Macroprudential_Mandates.pdf?87d54 5ebc9fe76b76b6c545b6bad218c
5. The views expressed herein are those of the author and can therefore in no way be taken to reflect the official opinion of the National Bank of Ukraine.
Dessatniuk Oksana, Cherevko Olga, Ternopil National Economic University, E-mail: o.cherevko@ukr.net
Practical application of the methodology for calculating the arm’s length range of prices/profitability for transfer pricing purposes
Abstract: In order to ensure that the price in a transaction between related parties coincide with the market price, the arm’s length range must be calculated. This involves identification of comparable transactions, listing prices or calculating profitability ratios, defining the arm’s length range, its quartiles and usually a median. Despite the process being mostly subjective and judgmental, there are certain strict rules and techniques to be followed. The goal of this paper is to examine the arm’s length range determination and its regulation by Ukrainian government.
Keywords: arms length range, transfer pricing
The use of transfer pricing (further — TP) for multinational enterprises (further — MNE) is now a common practice. The governments are usually responsible for defining legislative rules on this process. International organizations such as the Organization for Economic Co-operation and Development (further — OECD) or the United Nations are also very much involved in developing guidelines based on current world practice and experience.
The fundamental concept in TP is the well-known “arm’s length” principle, an international TP standard that OECD member countries have agreed should be used for tax purposes by MNEs and tax administrations. The concept first introduced in the USA, was subsequently used by the OECD and has been adopted by virtually all tax authorities in major market countries [1]. Transfer price should be the same as if the two companies involved were indeed two independents [2]. Applying the arm’s length principle leads to calculation of the taxable income
median, quantile, OECD.
that reasonably is expected to be derived if the parties were dealing at arm’s length with one another.
To establish the arm’s length conditions (or a range of profitability/prices thereof), it is necessary to compare the attributes of the transactions or enterprises in order to find the most comparable ones with regard to a certain transactions with its related parties. Usually it is hard to meet an exact price (a single figure — price or a margin) based on the arm’s length principle. These difficulties may be explained by:
• the application of the arm’s length principle only produces an approximation ofthe conditions that would have been established between independent enterprises — it’s nearly impossible to find the exact same ones;
• independent enterprises engaged in comparable transactions under comparable circumstances may not establish exactly the same price — different factors may influence their pricing decision;
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