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Financial Stability Frameworks and the Role of Central Banks; Lessons From the Crisis

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  • Erlend Nier

Abstract

This paper sets out general principles for the design of financial stability frameworks, starting from an analysis of the objectives and tools of financial regulation. The paper then offers a comprehensive analysis of the costs and benefits of the two main models that have emerged for modern financial systems: the integrated model, with a single supervisor outside of the central bank, and the twin-peaks model, with a systemic risk regulator (central bank) on the one hand and a conduct of business regulator on the other. The paper concludes that the twin-peaks model may become more attractive when regulatory structures are geared more explicitly towards the mitigation of systemic risk-including through the introduction of new macroprudential tools that could be used alongside monetary policy to contain macro-systemic risks; through enhanced regulation and special resolution regimes for systemically important institutions; and a more holistic approach to the oversight of clearing and settlement systems. Since the optimal solution may well be path-dependent and specific to the development of financial markets in any given country, a number of hybrid models are also discussed.

Suggested Citation

  • Erlend Nier, 2009. "Financial Stability Frameworks and the Role of Central Banks; Lessons From the Crisis," IMF Working Papers 09/70, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/70
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    Cited by:

    1. Masciandaro, Donato & Volpicella, Alessio, 2016. "Macro prudential governance and central banks: Facts and drivers," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 101-119.
    2. Eva Zamrazilová, 2011. "Měnová politika: staré lekce, nové výzvy
      [Monetary Policy: Old Lessons and New Challenges]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 3-21.
    3. Malgorzata Olszak, 2012. "Macroprudential policy - aim, instruments and institutional architecture (Polityka ostroznosciowa w ujêciu makro - cel, instrumenty i architektura instytucjonalna)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 10(39), pages 7-32.
    4. Chen-Min Hsu & Chih-Feng Liao, 2010. "Financial Turmoil in the Banking Sector and the Asian Lamfalussy Process: The Case of Four Economies," Working Papers id:3121, eSocialSciences.
    5. Qiang Ji & Bing-Yue Liu & Juncal Cunado & Rangan Gupta, 2017. "Risk Spillover between the US and the Remaining G7 Stock Markets Using Time-Varying Copulas with Markov Switching: Evidence from Over a Century of Data," Working Papers 201759, University of Pretoria, Department of Economics.
    6. Siregar, Reza Yamora & Lim & C.S. Vincent, 2010. "The Role of Central Banks in Sustaining Economic Recovery and in Achieving Financial Stability," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp74, April.
    7. Nasha Ananchotikul & Chayawadee Chai-anant & Krist Dacharux & Manop Udomkerdmongkol, 2009. "Thailand’s Medium-term Macroeconomic Policies: Major Challenges and Appropriate Responses," Working Papers 2009-05, Monetary Policy Group, Bank of Thailand.
    8. International Monetary Fund, 2009. "United States; Selected Issues," IMF Staff Country Reports 09/229, International Monetary Fund.
    9. Moshirian, Fariborz, 2011. "The global financial crisis and the evolution of markets, institutions and regulation," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 502-511, March.
    10. Gábor Gyura & Anikó Szombati, 2009. "Systemic risk in focus – New directions of financial supervision at home and abroad," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(4), pages 6-12, December.
    11. Erlend Nier & Luis Ignacio Jácome & Jacek Osinski & Pamela Madrid, 2011. "Towards Effective Macroprudential Policy Frameworks; An Assessment of Stylized Institutional Models," IMF Working Papers 11/250, International Monetary Fund.
    12. Buklemishev, O. & Danilov, Yu., 2013. "Effective Financial Regulation and Creation of the Mega-Regulator in Russia," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 82-98.
    13. Masciandaro Donato, 2012. "Back to the Future?," European Company and Financial Law Review, De Gruyter, vol. 9(2), pages 112-130, July.
    14. Gjorgji Gockov & Trenovski Borce, 2013. "The Role Of Macroprudential Measures In Terms Of Global Economic Crises €“ The Case Of The Republic Of Macedonia," Journal Articles, Center For Economic Analyses, pages 37-49, December.
    15. Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.
    16. Tristan Nguyen, 2011. "A macro-prudential perspective of financial regulation," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(3), pages 289-297, July.
    17. Aviral Kumar Tiwari & Juncal Cunado & Rangan Gupta & Mark E. Wohar, 2017. "Volatility Spillovers across Global Asset Classes: Evidence from Time and Frequency Domains," Working Papers 201780, University of Pretoria, Department of Economics.
    18. repec:nzb:nzbbul:dec2017:11 is not listed on IDEAS

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