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Why is financial stability a goal of public policy?

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  • Andrew D. Crockett

Abstract

A number of developments in recent years have combined to put the issue of financial stability at the top of the agenda, not just of supervisory authorities, but of public policymakers more generally. These developments include: the explosive growth in the volume of financial transactions, the increased complexity of new instruments, costly crises in national financial systems, and several high-profile mishaps at individual institutions.> Policymakers care about financial instability because of the close linkages between financial stability and the health of the real economy. Recent examples of these linkages include the banking crises in Scandinavia and Japan, the 1995 peso crisis in Mexico, and the current exchange rate and banking problems in the emerging market economies of Southeast Asia.> In remarks made before the Federal Reserve Bank of Kansas City’s 1997 symposium, “Maintaining Financial Stability in a Global Economy,” Mr. Crockett examines the role of public policy in maintaining financial stability. In particular, he addresses the following questions: What do we mean by financial stability? Why should official intervention (as opposed to reliance on market forces) be required to promote stability? And what concrete approaches can be employed?

Suggested Citation

  • Andrew D. Crockett, 1997. "Why is financial stability a goal of public policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-22.
  • Handle: RePEc:fip:fedker:y:1997:i:qiv:p:5-22:n:v.82no.4
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    Cited by:

    1. Carolyn Currie, 2003. "Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises," Working Paper Series 132, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Oosterloo, Sander & de Haan, Jakob & Jong-A-Pin, Richard, 2007. "Financial stability reviews: A first empirical analysis," Journal of Financial Stability, Elsevier, vol. 2(4), pages 337-355, March.
    3. G.G. Kaufman, 2000. "Banking and Currency Crises and Systemic Risk: A Taxonomy and Review," DNB Staff Reports (discontinued) 48, Netherlands Central Bank.
    4. Oosterloo, Sander & de Haan, Jakob, 2004. "Central banks and financial stability: a survey," Journal of Financial Stability, Elsevier, vol. 1(2), pages 257-273, December.
    5. Mikhail V. Oet & John M. Dooley & Stephen J. Ong, 2015. "The Financial Stress Index: Identification of Systemic Risk Conditions," Risks, MDPI, Open Access Journal, vol. 3(3), pages 1-25, September.
    6. Currie, Carolyn, 2006. "A new theory of financial regulation: Predicting, measuring and preventing financial crises," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 48-71, February.
    7. Marc Quintyn & Michael W. Taylor, 2003. "Regulatory and Supervisory Independence and Financial Stability," CESifo Economic Studies, CESifo, vol. 49(2), pages 259-294.
    8. Stanley Fischer, 1997. "Why is financial stability a goal of public policy? (commentary)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 37-45.
    9. George G. Kaufman, 2000. "Banking and currency crisis and systemic risk: lessons from recent events," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 9-28.
    10. Jakob Haan & Sander Oosterloo, 2006. "Transparency and accountability of central banks in their role of financial stability supervisor in OECD countries," European Journal of Law and Economics, Springer, vol. 22(3), pages 255-271, November.
    11. Driffill, John & Rotondi, Zeno & Savona, Paolo & Zazzara, Cristiano, 2006. "Monetary policy and financial stability: What role for the futures market?," Journal of Financial Stability, Elsevier, vol. 2(1), pages 95-112, April.
    12. Berardi, Simone & Marcelletti, Alessandra, 2017. "Optimal Bank Capital Requirements: An Asymmetric Information Perspective," SEP Working Papers 2017/2, LUISS School of European Political Economy.
    13. Di Giorgio, Giorgio & Rotondi, Zeno, 2011. "Financial stability, interest-rate smoothing and equilibrium determinacy," Journal of Financial Stability, Elsevier, vol. 7(1), pages 1-9, January.
    14. Georges Dionne, 2003. "The Foundationsof Banks' Risk Regulation: A Review of Literature," THEMA Working Papers 2003-46, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    15. Martin Cihak, 2007. "Introduction to Applied Stress Testing," IMF Working Papers 07/59, International Monetary Fund.
    16. Martin Cihak, 2006. "How Do Central Banks Writeon Financial Stability?," IMF Working Papers 06/163, International Monetary Fund.
    17. Tenea Andrei Cosmin, 2016. "Considerations On The Content And Objectives Of Financial Stability," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 154-156, December.
    18. George G. Kaufman, 1999. "Banking and currency crises and systemic risk: a taxonomy and review," Working Paper Series WP-99-12, Federal Reserve Bank of Chicago.
    19. Garry J. Schinasi, 2003. "Responsibility of Central Banks for Stability in Financial Markets," IMF Working Papers 03/121, International Monetary Fund.
    20. Tabak, Benjamin M. & Staub, Roberta B., 2007. "Assessing financial instability: The case of Brazil," Research in International Business and Finance, Elsevier, vol. 21(2), pages 188-202, June.
    21. Udaibir S Das & Marc G Quintyn & Kina Chenard, 2004. "Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis," IMF Working Papers 04/89, International Monetary Fund.
    22. Ghosh, Saibal, 2001. "Financial Stability and Public Policy: An Overview," MPRA Paper 19757, University Library of Munich, Germany.
    23. Moutsianas, Konstantinos A. & Kosmidou, Kyriaki, 2016. "Bank earnings volatility in the UK: Does size matter? A comparison between commercial and investment banks," Research in International Business and Finance, Elsevier, vol. 38(C), pages 137-150.
    24. Knorr Andreas, 1999. "Staatliche Bankenaufsicht – eine effiziente Institution?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 50(1), pages 345-370, January.

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    Keywords

    Public policy ; Financial institutions;

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