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Better safe than sorry: Macroprudential policy, Covid 19 and climate change

Author

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  • Le Quang, Gaëtan
  • Scialom, Laurence

Abstract

The crisis of 2007-08 called for a renewal of banking regulation that took the shape of a shift toward macroprudential policy. However, a comprehensive assessment of the current state of financial regulation reveals that this shift is incomplete. In particular, the notion of risk that lies at the heart of the Basel framework is still blind to extreme events. Climate risk and pandemic risk fall into this category. The purpose of this article is twofold. On the one hand, we point out why current banking regulation is not adequate to face risks whose origin is grounded outside financial markets – as is the case for both the pandemic and the climate risks –; on the other hand, we offer avenues for reforming macroprudential regulation in a way that would allow to take those risks into account.

Suggested Citation

  • Le Quang, Gaëtan & Scialom, Laurence, 2022. "Better safe than sorry: Macroprudential policy, Covid 19 and climate change," International Economics, Elsevier, vol. 172(C), pages 403-413.
    • Handle: RePEc:eee:inteco:v:172:y:2022:i:c:p:403-413
    DOI: 10.1016/j.inteco.2021.07.002
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    More about this item

    Keywords

    Macroprudential policy; Climate change; Covid 19; Risk;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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