By Heiko Hesse. Turkey’s economy has long been subject to boom-bust cycles linked to capital flows. And while the Turkish banking system continues to perform well, it faces some structural vulnerabilities that can pose financial stability risks. In common with peer countries, Turkey has been developing and implementing a macroprudential policy (MPP) framework, which has had some success in mitigating financial stability concerns. Looking ahead, Turkey’s macro-prudential and micro-prudential tool kit should be expanded and used in a more targeted and active manner to ensure financial stability, with a focus on debt-to-income limits on households, steps to constrain unhedged foreign exchange borrowing, and more active use of steps to limit growth in very fast-growing credit segments.