Building an effective financial stability policy framework: lessons from the post-crisis decade

Dimitri Demekas

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: A decade after the global financial crisis, the task of building a financial stability policy framework has unfinished business. Fundamental questions about the goal of financial stability and the policies to achieve it were sidelined by the excessive focus on the minutiae of macroprudential policy. Increased responsibilities were given to central banks without a proper discussion about the right degree of delegation and accountability. A comprehensive framework for financial stability should have three pillars: macroprudential policy, microprudential supervision, and financial safety nets. Sufficient operational independence should be given to the agency(ies) responsible for financial stability but determining the goal, institutional architecture, and agency assignments, resolving any policy tradeoffs, and ensuring accountability should be a political responsibility. Even with the best framework, however, given the variety of structural, behavioral, and political economy factors affecting financial stability and our limited understanding of the financial system, securing this goal will remain a challenge.

Keywords: financial stability; macroprudential policy; banks; policy design; governance (search for similar items in EconPapers)
JEL-codes: G10 G18 G20 G28 G38 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-04
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)

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