Would Macroprudential Regulation Have Prevented the Last Crisis?

53 Pages Posted: 7 Aug 2018

See all articles by David Aikman

David Aikman

Bank of England - Monetary Assessment and Strategy Division

Jonathan Bridges

Bank of England

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

Caspar Siegert

Bank of England

Date Written: August 3, 2018

Abstract

How well equipped are today’s macroprudential regimes to deal with a re-run of the factors that led to the global financial crisis? We argue that a large proportion of the fall in US GDP associated with the crisis can be explained by two factors: the fragility of financial sector — represented by the increase in leverage and reliance on short-term funding at non-bank financial intermediaries — and the build-up in indebtedness in the household sector. We describe and calibrate the policy interventions a macroprudential regulator would wish to make to address these vulnerabilities. And we compare and contrast how well placed two prominent macroprudential regulators — the US Financial Stability Oversight Council and the UK’s Financial Policy Committee — are to implement these policy actions.

Keywords: Financial crises, macroprudential policy, leverage, short-term wholesale funding, credit crunch, household debt, aggregate demand externality, countercyclical capital buffer, loan to value ratio, loan to income ratio.

JEL Classification: G01, G21, G23, G28.

Suggested Citation

Aikman, David and Bridges, Jonathan and Kashyap, Anil K. and Siegert, Caspar, Would Macroprudential Regulation Have Prevented the Last Crisis? (August 3, 2018). Bank of England Working Paper No. 747, Available at SSRN: https://ssrn.com/abstract=3226822 or http://dx.doi.org/10.2139/ssrn.3226822

David Aikman (Contact Author)

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Jonathan Bridges

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Anil K. Kashyap

University of Chicago, Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7260 (Phone)
773 702-0458 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-7260 (Phone)
773-702-0458 (Fax)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Caspar Siegert

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
54
Abstract Views
550
rank
453,016
PlumX Metrics