CHALLENGES FOR FINANCIAL STABILITY POLICY

Alastair Clark

Economic Affairs, 2004, vol. 24, issue 4, 41-46

Abstract: Financial stability issues have attracted increasing attention as the global financial system has become more complex and more integrated. This article discusses some challenges posed by this environment for financial stability policy‐makers. The challenges identified are: how to assess the relative merits of different policy measures and calibrate their effects; how to design regulatory capital requirements that are not too prescriptive or detailed; how incentive structures for individuals within firms can be better aligned with a firm's objectives for both return and risk; how‘the authorities’ should relate to large, complex financial institutions; and how to improve the handling of sovereign debt crises. The article gives a flavour of the official debate in each of these areas.

Date: 2004
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