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Macroprudential Regulation — The Missing Policy Pillar

Published online by Cambridge University Press:  26 March 2020

E. Philip Davis  and
Dilruba Karim
E. Philip Davis*
Affiliation:
National Institute of Economic and Social Research and Brunel University
Dilruba Karim*
Affiliation:
Brunel University
*
E-mail: e_philip_davis@msn.com
E-mail: dilly.karim@gmail.com
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Abstract

The recent Sub-Prime crisis has prompted a close focus on the causes of financial instability as well as the issue of whether it can be prevented. There is a growing realisation that the Sub-Prime crisis, although having some important unique features, also had a number of generic aspects in common with earlier financial crises, of which a large number have been seen in recent decades. Accordingly, the crisis has prompted a debate about macroprudential policy, which focuses on the financial system as a whole, treating aggregate risk as endogenous with regard to collective behaviour of institutions. Our survey shows that a great deal of progress has been made in ‘macroprudential surveillance’ and related research on causes and predictors of crises. Much less progress has been made in ‘macroprudential regulation’, the design and implementation of policies to prevent or mitigate threatened crises.

Keywords

Financial crisesmacroprudential policyfinancial regulationG28E44
Type
Research Articles
Information
National Institute Economic Review , Volume 211 , January 2010 , pp. R3 - R16
Copyright
Copyright © 2010 National Institute of Economic and Social Research

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Footnotes

∗

Parts of this paper are derived from Davis and Karim (2008c) which also appeared in Mayes et al. (2009). An earlier version was keynote address at the 6th Euroframe Conference on Economic Policy Issues in the European Union, 12 June 2009, entitled 'Causes and consequences of the current financial crisis, what lessons for EU countries?' The authors thank participants in the Euroframe Conference and at a seminar at HM Treasury in October 2009 for helpful comments.

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