Maintaining stability in a changing financial system: some lessons relearned again?

Over the past three decades, we have experienced an increased number of financial crises in many countries around the world. These crises have taken place in many different parts of the financial system, including: banking and payments systems, housing finance systems, securities markets, and currency markets. Central banks and other authorities charged with maintaining financial stability have drawn important lessons from each of these crises and have instituted regulatory and policy changes that have helped strengthen the financial system in the wake of these crises. ; Despite our best efforts, financial crises have continued to return in modified form, requiring ongoing vigilance. Moreover, the task of maintaining financial stability has become more difficult over time because of the changing structure of the financial system. Unfortunately, we have not adapted our regulatory and policy framework at the same speed as financial market developments. ; In a speech made before the High Level Meeting on Regulatory Capital and Issues in Financial Stability in Sydney, Australia, last November, Mr. Hoenig used the recent subprime mortgage crisis to motivate a broader discussion of how we can maintain financial stability in a changing financial system. While the recent crisis has revealed some new and unexpected vulnerabilities in the financial system, it has also highlighted the need to remember some of the lessons we have learned from past crises.