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Would macroprudential regulation have prevented the last crisis?

Author

Listed:
  • Aikman, David

    () (Bank of England)

  • Bridges, Jonathan

    () (Bank of England)

  • Kashyap, Anil

    () (University of Chicargo Booth School of Business)

  • Siergert, Caspar

    () (Bank of England)

Abstract

How well equipped are today’s macroprudential regimes to deal with a re-run of the factors that led to the global financial crisis? We argue that a large proportion of the fall in US GDP associated with the crisis can be explained by two factors: the fragility of financial sector — represented by the increase in leverage and reliance on short-term funding at non-bank financial intermediaries — and the build-up in indebtedness in the household sector. We describe and calibrate the policy interventions a macroprudential regulator would wish to make to address these vulnerabilities. And we compare and contrast how well placed two prominent macroprudential regulators — the US Financial Stability Oversight Council and the UK’s Financial Policy Committee — are to implement these policy actions.

Suggested Citation

  • Aikman, David & Bridges, Jonathan & Kashyap, Anil & Siergert, Caspar, 2018. "Would macroprudential regulation have prevented the last crisis?," Bank of England working papers 747, Bank of England.
  • Handle: RePEc:boe:boeewp:0747
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    More about this item

    Keywords

    Financial crises; macroprudential policy; leverage; short-term wholesale funding; credit crunch; household debt; aggregate demand externality; countercyclical capital buffer; loan to value ratio; loan to income ratio;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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