On the Nexus of Monetary Policy and Financial Stability: Is the Financial System More Resilient?

Patricia Mora and Michael Januska

Discussion Papers from Bank of Canada

Abstract: Monetary policy and financial stability are closely intertwined, and the resilience of the financial system carries weight in this relationship. This paper explores whether the financial system is more resilient as a result of the G20’s post-crisis agenda for financial regulatory reform. It summarizes the agenda’s key measures and implementation schedules, both internationally and in Canada, reviews the effectiveness of the reform measures in preventing and addressing financial imbalances, and outlines outstanding issues. It finds that, to date, there is evidence that the G20’s reform measures are increasing financial system resilience globally, especially in the banking sector. Yet, implementation is still ongoing, and it may be too early to judge how the reform measures are interacting with one another. In Canada, the resilience of the financial system is being enhanced by the ongoing implementation of more-rigorous global regulatory and supervisory standards. Consequently, the likelihood and impact of severe financial stress in the future should be reduced, supporting the primary focus of monetary policy on achieving its 2 per cent inflation target.

Keywords: Financial stability; Financial system regulation and policies; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: E52 G01 G21 G23 G28 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:16-12

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