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Is there macroprudential policy without international cooperation?

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  • Cecchetti, Stephen G
  • Tucker, Paul

Abstract

In this paper we address three questions: (1) Does global finance require a common prudential standard? (2) Does global finance require international cooperation in overseeing the system’s safety and soundness? And (3), does global finance require notification, cooperation and coordination of dynamic regulatory-policy adjustments? Our answer to the first question is that global finance does require a common prudential standard, defined as a level of required resilience, applied appropriately to all parts of the financial system. Without adoption of a common resilience standard, the international financial system will fragment and balkanize. In addressing the second question, we explain why shared, collective analysis is necessary to identify and mitigate stability-threatening shortfalls against that standard for resilience. This will be possible only with increased public and private transparency. Finally, we examine the daunting, but essential, task of implementing a dynamic prudential framework that maintains the system’s resilience even as its structure and risk-taking behaviors change. The policy implications of our analysis focus on the need for global agreement, implementation monitoring, information sharing and even, sometimes given damaging spillovers, collective regulatory responses to emerging threats. Institutions will need to be adapted to make all this feasible.

Suggested Citation

  • Cecchetti, Stephen G & Tucker, Paul, 2016. "Is there macroprudential policy without international cooperation?," CEPR Discussion Papers 11042, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11042
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    References listed on IDEAS

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    1. Andrea Ajello & Thomas Laubach & J. David Lopez-Salido & Taisuke Nakata, 2016. "Financial Stability and Optimal Interest-Rate Policy," Finance and Economics Discussion Series 2016-067, Board of Governors of the Federal Reserve System (U.S.).
    2. Paul Tucker, 2014. "The lender of last resort and modern central banking: principles and reconstruction," BIS Papers chapters,in: Bank for International Settlements (ed.), Re-thinking the lender of last resort, volume 79, pages 10-42 Bank for International Settlements.
    3. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters,in: Globalization in Historical Perspective, pages 121-188 National Bureau of Economic Research, Inc.
    4. Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database; An Update," IMF Working Papers 12/163, International Monetary Fund.
    5. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 359-406.
    6. Robert McCauley & Patrick McGuire & Goetz von Peter, 2010. "The architecture of global banking: from international to multinational?," BIS Quarterly Review, Bank for International Settlements, March.
    7. Emmanuel Farhi & Iván Werning, 2016. "A Theory of Macroprudential Policies in the Presence of Nominal Rigidities," Econometrica, Econometric Society, vol. 84, pages 1645-1704, September.
    8. Samuel G. Hanson & Anil K. Kashyap & Jeremy C. Stein, 2011. "A Macroprudential Approach to Financial Regulation," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 3-28, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Global Finance Requires More Global Cooperation
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-02-15 18:20:03
    2. Brexit Stress Test
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-07-11 17:50:48
    3. Are European Stress Tests Stressful Enough?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-08-08 17:30:02
    4. An Open Letter to Congressman Patrick McHenry
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-02-06 19:04:54

    Citations

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    Cited by:

    1. Hoggarth, Glen & Jung, Carsten & Reinhardt, Dennis, 2016. "Capital inflows — the good, the bad and the bubbly," Bank of England Financial Stability Papers 40, Bank of England.
    2. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2017. "Global banking and the conduct of macroprudential policy in a monetary union," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 306-331.
    3. Jorge Abad & Marco D'Errico & Neill Killeen & Vera Luz & Tuomas Peltonen & Richard Portes & Teresa Urbano, 2017. "Mapping the Interconnectedness between EU Banks and Shadow Banking Entities," NBER Working Papers 23280, National Bureau of Economic Research, Inc.
    4. repec:bis:bisbps:97 is not listed on IDEAS

    More about this item

    Keywords

    Basel Committee on Banking Supervision; financial globalization; Financial Stability Board; financial stability policy; international cooperation; macroprudential policy; prudential policy; stress tests;

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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