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

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  • Ivo Maes

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

Abstract

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

Suggested Citation

  • Ivo Maes, 2009. "On the origins of the BIS macro-prudential approach to financial stability: Alexandre Lamfalussy and financial fragility," Working Paper Research 176, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:200910-09
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    File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp176en.pdf
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    References listed on IDEAS

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    1. 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.
    2. Bank for International Settlements, 1986. "Recent innovations in international banking (Cross Report)," CGFS Papers, Bank for International Settlements, number 01.
    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. 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.
    5. 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.
    6. 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.
    7. Ivo Maes, 2009. "The young Lamfalussy : an empirical and policy-oriented growth theorist," Working Paper Research 163, National Bank of Belgium.
    8. Silber, William L, 1983. "The Process of Financial Innovation," American Economic Review, American Economic Association, vol. 73(2), pages 89-95, May.
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    Cited by:

    1. André Cartapanis, 2011. "La crise financière et les politiques macroprudentielles. Inflexion réglementaire ou nouveau paradigme ?," Revue économique, Presses de Sciences-Po, vol. 62(3), pages 349-382.
    2. Heather D. Gibson & Stephen G. Hall & George S. Tavlas, 2016. "Measuring Systemic Stress in European Banking Systems," Discussion Papers in Economics 16/19, Department of Economics, University of Leicester.

    More about this item

    Keywords

    Lamfalussy; BIS; macro-prudential; systemic stability; financial fragility; risk;

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B32 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Obituaries
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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