Financial stability reports: how useful during a financial crisis?

Many of the origins of the recent financial crisis were in the United States, beginning with subprime mortgages and mortgage securities. As the crisis spread globally, few market participants or regulatory authorities saw it coming and all underestimated its severity. ; In the United States, the crisis has sparked many proposals to address its perceived causes and prevent a recurrence. One approach already used in many other countries is publishing financial stability reports. These reports review the condition of the financial system, identify and assess risks to the system, and suggest market or policy changes to address significant risk concerns. They are usually prepared by the country?s central bank and appear on a regular basis. ; Wilkinson, Spong, and Christensson analyze the financial stability reports prepared by four European countries that were affected by the financial crisis the United Kingdom, Sweden, the Netherlands, and Spain. They find that these four reports were generally successful in identifying the risks that played important roles in the crisis although they underestimated the severity of this crisis. While it is not clear that the reports helped to reduce the damages, it would be a mistake to dismiss them as a useful tool. Overall, publishing financial stability reports appears to be a worthwhile exercise that encourages central banks and international authorities to identify and monitor important financial trends and emerging risks and to develop a better understanding of the underlying structure of domestic and global financial markets.