Macroprudential Regulation

Abstract

Real world crises have a way of shaking up the intellectual foundations of policy disciplines. Elements of received wisdom are undermined, while certain heterodox or less mainstream views are seen as more valid or important than had been widely recognized. The financial crisis of 2007-2009 was no exception. Some ideas, such as the efficient markets hypothesis, have taken some hits, as others have risen to prominence. An example of the latter is the view that financial stability must be an explicit economic policy goal. A corollary of this view is that a "macroprudential" perspective-generally characterized as focused on the financial system as a whole as opposed to the well-being of individual firms-should be added to traditional prudential regulation.