Would macroprudential regulation have prevented the last crisis?

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

Bank of England

August 3, 2018

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By |2018-08-21T07:30:54-07:00January 1st, 2018|Financial Regulation, Reference, Reforms, Systemic Risk/Financial Crises|