This book is a collection of papers presented in the conference held at the Federal Reserve Bank of Chicago in September 2010, that examines the role of macroprudential regulation in the financial industry. Shocked by the experience of the last few years, many argue that the more traditional microprudential regulatory tools are inadequate to create a safe and stable financial system. The microprudential paradigm relies on the presumption that the financial system as a whole can be made safe by ensuring individual financial institutions are made safe. This ignores interconnections and externalities, whereby the actions of one financial institution or events in financial markets can lead to spillover effects that adversely affect general market conditions, other financial institutions, and ultimately the economy as a whole. Instead, it is argued, there is a need for both microprudential approaches to regulate individual institutions and macroprudential approaches to manage the overall financial system risks.
Conference participants discussed macroprudential regulation and related issues, including: What are the theoretical motivations for macroprudential regulation? How would it interact with other regulatory and macroeconomic policies, especially monetary policy? What would be the specific macroprudential tools? Who should have control over the macroprudential tools? How should a macroprudential regulator be structured? Where should it be housed? How can macroprudential policies be structured across national borders? What role, if any, can market discipline play in supporting macroprudential objectives?
Concentrating on public policy issues, the conference featured keynote addresses by influential past and present public policy figures including: Paul Volcker, Chairman of the US President',s Economic Recovery Advisory Board and former Chairman of the Federal Reserve System, Tommaso Padoa-Schioppa, Chairman, Promontory Financial Group Europe and Former Chairman of the Basel Committee on Banking Supervision, Jaime Caruana, General Manager of the Bank for International Settlements and Former Chairman of the Basel Committee on Banking Supervision, and Charles Taylor, Director of the Pew Charitable Trust Financial Reform Project and Former Executive Director of the Group of Thirty.
Protecting the Stability of Global Financial Markets (Paul A Volcker)
Global Macroprudential Regulation (Tommaso Padoa-Schioppa)
The Challenge of Taking Macroprudential Decisions: Who Will Press Which Button(s)? (Jaime Caruana)
Macroprudential Regulation and Evolution: Looking at the Financial System Through Darwin',s Glasses (Charles Taylor)
Why Macroprudential Policies are Needed:
Lessons from American Bank Supervision from the Nineteenth Century to the Great Depression (Eugene N White)
Coordination with Other Policies:
Cross-Border Coordination of Macroprudential Policies (Attila Csajbó,k and Jú,lia Kirá,ly)
Macroprudential Policy: Central Banking Reconsidered (Jean-Pierre Landau)
Macroprudential Policy and Monetary Policy: Some Lessons from the Euro Area (Domenico Giannone, Michele Lenza, Huw Pill, and Lucrezia Reichlin)
Commentary on Macroprudential and Other Policies (E Philip Davis)
Components of Macroprudential Regulation:
Measuring Systemic Risk (Viral V Acharya)
Systemic Risk in Bankruptcy Exceptions, Natural Candidates for Liquidity Charges (Enrico Perotti)
Working Macroprudential Tools (Jesú,s Saurina)
Structuring Macroprudential Regulation:
On the Governance of Macroprudential Policies (Erlend W Nier)
Some Implications of Systemic Risk and the Design of Regulatory Architecture (Marco Espinosa-Vega, Juan Solé,, Charles Kahn and Rafael Matta)
The Last Frontier: Protecting Critical Functions Across Borders (Eva H G Hü,pkes)
Cross-Border Crisis Management: Can Harmonization Create Harmony If the Orchestra Is Dissonant? (Gré,gory Nguyen and Peter Praet)
Regulation and Competition in EU Banking: Before, During, and After the Crisis (André, Sapir)
Cycle-Proof Market Discipline and Macroprudential Regulation (Luc Laeven)
Curbing Risk on Wall Street (Oliver Hart and Luigi Zingales)
What Role, If Any, Can Market Discipline Play in Supporting Macroprudential Policy? (Marí,a J Nieto)
Policy Panel: Where to from Here?:
Macroprudential Regulatory Policies: The New Road to Financial Stability (William R White)
Beyond Regulatory Challenge: The New Public Policy Paradigm (Tarisa Wataganase)
Challenges for Macroprudential Supervision (Randall Kroszner)
Macroprudential Regulation, Financial Stability, and Capital Flows (José, De Gregorio)
Readership: Undergraduate and graduate students as well as researchers in international finance, central banks and financial regulators.