Rethinking financial stability

David Aikman (), Andrew Haldane (), Marc Hinterschweiger and Sujit Kapadia
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Andrew Haldane: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 712, Bank of England working papers from Bank of England

Abstract: The global financial crisis has been the prompt for a complete rethink of financial stability and policies for achieving it. Over the course of the better part of a decade, a deep and wide-ranging international regulatory reform effort has been under way, as great as any since the Great Depression. We provide an overview of the state of progress of these reforms, and assess whether they have achieved their objectives and where gaps remain. We find that additional insights gained since the start of the reforms paint an ambiguous picture on whether the current level of bank capital should be higher or lower. Additionally, we present new evidence that a combination of different regulatory metrics can achieve better outcomes in terms of financial stability than reliance on individual constraints in isolation. We discuss in depth several recurring themes of the regulatory framework, such as the appropriate degree of discretion versus rules, the setting of macroprudential objectives, and the choice of policy instruments. We conclude with suggestions for future research and policy, including on models of financial stability, market-based finance, the political economy of financial regulation, and the contribution of the financial system to the economy and to society.

Keywords: Financial stability; macroprudential policy; Basel III; capital requirements; liquidity requirements (search for similar items in EconPapers)
JEL-codes: G01 G18 G21 G28 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2018-02-23
New Economics Papers: this item is included in nep-cba, nep-mac and nep-rmg
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0712

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