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The last financial crisis and the case for macro-prudential intervention

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Abstract

This article takes a look back at the last financial cycle that occurred over the previous decade – a cycle that contributed to one of the longest periods of uninterrupted economic growth in New Zealand for the past 60 years. It conducts a counterfactual exercise that maps the Reserve Bank’s new macro-prudential policy framework on to financial system developments over the period. It finds that, with the benefit of hindsight, there would have been a compelling case for macro-prudential intervention from 2005 onwards to address a build-up of systemic risk within the financial sector. The temporary increase in capital or liquidity buffers, or the application of loan-to-value restrictions on residential mortgages, would have materially enhanced the resilience of the financial system in the face of developments late in the decade. Macro-prudential intervention may have also tempered credit and asset price developments during the boom itself.

Suggested Citation

  • Chris Hunt, 2013. "The last financial crisis and the case for macro-prudential intervention," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 76, pages 3-16, June.
    • Handle: RePEc:nzb:nzbbul:jun2013:01
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2013/2013jun76-2hunt.pdf
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    References listed on IDEAS

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    1. Ian Woolford, 2001. "Macro-financial stability and macroprudential analysis," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, September.
    2. Lamorna Rogers, 2013. "A new approach to macro-prudential policy for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 76, pages 12-22, September.
    3. Tim Ng, 2008. "‘Automatic’ cycle-stabilising capital requirements: what can be achieved?," Reserve Bank of New Zealand Discussion Paper Series DP2008/04, Reserve Bank of New Zealand.
    4. Willy Chetwin & Michael Reddell, 2012. "Monetary policy in the last business cycle: some perspectives," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 3-14, June.
    5. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    6. Willy Chetwin, 2012. "Business cycle review, 1998-2011," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 14-27, March.
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    Cited by:

    1. Tony Wolken, 2013. "Measuring systemic risk: the role of macro-prudential indicators," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 76, pages 13-30, December.

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