On the origins of the BIS macro-prudential approach to financial stability: Alexandre Lamfalussy and financial fragility
AbstractAmong the international policy institutions, the Bank for International Settlements (BIS) is known for its sensitivity to financial stability issues. Attention to the "macro-prudential" dimension of financial stability is very typical for the BIS. The Bank's macro-prudential approach first came to the fore in the 1986 Cross Report. It defined the macro-prudential domain as "the safety and soundness of the broad financial system and payments mechanism". In this paper, it will be argued that Alexandre Lamfalussy, who was at the BIS from 1976 to 1993, played a crucial role in shaping the Bank's approach to financial stability. Lamfalussy is renowned for taking a broad macroeconomic view and for focusing on the systemically important financial institutions, as the failure of one of these individual institutions would threaten the whole financial system. In Lamfalussy's view, there is thus very much an overlap between the micro- and macro-prudential dimensions of financial stability. This paper traces Lamfalussy's analysis of financial fragility and goes into the reasons for his sensitivity to it. Among the main elements involved were: a "Keynesian" Weltanschauung (that a market economy is not sufficiently self-correcting); the emphasis of Dupriez (his teacher in Louvain) on cycles; Lamfalussy's own experience as a commercial banker; BIS involvement in financial stability issues, especially the Latin American debt crisis of 1982-83; and research in the central banking community on financial innovations in the early 1980s
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 176.
Length: 41 pages
Date of creation: Oct 2009
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Lamfalussy; BIS; macro-prudential; systemic stability; financial fragility; risk;
Find related papers by JEL classification:
- A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- B32 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Obituaries
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
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