Calibrating Prudential Lending

Assess how a central bank's move to curb high-cost lending interacts with rising loan arrears, considering macroprudential tools, risk-based capital requirements, and borrower support. Propose a staged policy framework that tightens on financial risk while preserving credit flow to essential sectors, with clear indicators to guide gradual tightening or easing. Examine implications for banks, borrowers, and the broader business cycle, and discuss how to maintain financial stability without stifling economic activity.