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Macroprudential policy involves using mainly prudential but sometimes also monetary and fiscal tools to reduce systemic risk and achieve financial stability. It is motivated by externalities associated with the buildup of systemic risk over time due to strategic complementarities, fire sales and credit crunches related to a generalized sell-off of assets, and strong cross-institutional interconnectedness. Macroprudential tools apply to both banks and nonbank financial institutions and to different classes of borrowers to the extent that they come with systemic risks.