Would macroprudential regulation have prevented the last crisis?
How well equipped are today’s macroprudential regimes to deal with a re-run of the factors that led to the global financial crisis? We argue that a large proportion of the fall in US GDP associated with the crisis can be explained by two factors: the fragility of financial sector – represented by the increase in leverage and reliance on short-term funding at non-bank financial intermediaries – and the build-up in indebtedness in the household sector. We describe and calibrate the policy interventions a macroprudential regulator would wish to make to address these vulnerabilities. And we compare and contrast how well placed two prominent macroprudential regulators – the US Financial Stability Oversight Council and the UK’s Financial Policy Committee – are to implement these policy actions.
David Aikman, Jonathan Bridges, Anil Kashyap, and Caspar Siegert
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