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On the origins of the BIS macro-prudential approach to financial stability: Alexandre Lamfalussy and financial fragility

  • Ivo Maes


    (National Bank of Belgium, Research Department
    Université catholique de Louvain, Robert Triffin Chair
    ICHEC Brussels Management School)

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    Among the international policy institutions, the Bank for International Settlements (BIS) is known for its sensitivity to financial stability issues. Attention to the "macro-prudential" dimension of financial stability is very typical for the BIS. The Bank's macro-prudential approach first came to the fore in the 1986 Cross Report. It defined the macro-prudential domain as "the safety and soundness of the broad financial system and payments mechanism". In this paper, it will be argued that Alexandre Lamfalussy, who was at the BIS from 1976 to 1993, played a crucial role in shaping the Bank's approach to financial stability. Lamfalussy is renowned for taking a broad macroeconomic view and for focusing on the systemically important financial institutions, as the failure of one of these individual institutions would threaten the whole financial system. In Lamfalussy's view, there is thus very much an overlap between the micro- and macro-prudential dimensions of financial stability. This paper traces Lamfalussy's analysis of financial fragility and goes into the reasons for his sensitivity to it. Among the main elements involved were: a "Keynesian" Weltanschauung (that a market economy is not sufficiently self-correcting); the emphasis of Dupriez (his teacher in Louvain) on cycles; Lamfalussy's own experience as a commercial banker; BIS involvement in financial stability issues, especially the Latin American debt crisis of 1982-83; and research in the central banking community on financial innovations in the early 1980s

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    Paper provided by National Bank of Belgium in its series Working Paper Research with number 176.

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    Length: 41 pages
    Date of creation: Oct 2009
    Date of revision:
    Handle: RePEc:nbb:reswpp:200910-09
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    1. Silber, William L, 1983. "The Process of Financial Innovation," American Economic Review, American Economic Association, vol. 73(2), pages 89-95, May.
    2. Lyle E. Gramley, 1982. "Financial innovation and monetary policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 393-400.
    3. William R. White, 2006. "Procyclicality in the financial system: do we need a new macrofinancial stabilisation framework?," BIS Working Papers 193, Bank for International Settlements.
    4. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    5. Ivo Maes & Erik Buyst, 2005. "Migration and Americanization: The special case of Belgian economics," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 12(1), pages 73-88.
    6. Bank for International Settlements, 1986. "Recent innovations in international banking (Cross Report)," CGFS Papers, Bank for International Settlements, number 01.
    7. Ivo Maes, 2009. "The young Lamfalussy : an empirical and policy-oriented growth theorist," Working Paper Research 163, National Bank of Belgium.
    8. Donald D. Hester, 1981. "Innovations and Monetary Control," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 141-200.
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