Taming the Cycles of Finance?: Central Banks and the Macro-prudential Shift in Financial Regulation

Macroprudential regulation is a set of economic and policy tools developed in response to the 2007-08 financial crisis to mitigate risk in the financial and banking systems. Taming the Cycles of Finance explores the post-crisis rise of macroprudential regulation and its impact on finance, arguing that it typically supports finance in times of crisis but fails to curb it in times of booms.

Format: Hardback
Length: 352 pages
Publication date: 22 February 2024
Publisher: Cambridge University Press

Macroprudential regulation is a comprehensive set of economic and policy tools designed to mitigate risk within the financial and banking systems. Its emergence can be traced back to the aftermath of the global financial crisis of 2007-08, when central banks assumed the role of de facto financial policemen. Taming the Cycles of Finance delves into the rise of macroprudential regulation post-crisis and explores its impact on financial stability. While initially intended to curb excessive risk-taking, the book argues that macroprudential frameworks often support finance during crises but fail to effectively regulate it during economic booms.

To investigate this phenomenon, the book examines the development of macroprudential frameworks in the UK, the USA, and the Eurozone. It sheds light on how central bank economists have worked to build early warning systems to identify vulnerabilities in the financial system. It further demonstrates how administrative and political constraints have limited the effectiveness of this shift, as central banks hesitated to intervene in a discretionary manner and policymakers were resistant to measures that could curb credit growth.

Macroprudential regulation plays a crucial role in ensuring financial stability and mitigating the potential risks associated with economic cycles. By implementing appropriate policies and frameworks, central banks can help prevent financial crises and promote sustainable economic growth. However, the effectiveness of macroprudential regulation depends on a balanced approach that considers both economic and political factors. It requires collaboration between central banks, policymakers, and other stakeholders to ensure that regulations are implemented effectively and that the financial system remains resilient to future challenges.

Weight: 654g
Dimension: 159 x 236 x 27 (mm)
ISBN-13: 9781009233132