Chapter 11: Macroprudential supervision and regulation – lessons for the next crisis
Every major financial crisis triggers a process of policy-learning. This is the case with the financial crisis that started in the United States in 2007 and rapidly spread to the rest of the world. This chapter summarizes the lessons on macroprudential supervision and regulation that are at present condensed from the global financial crisis. The chapter ends with a clear policy recommendation: the current framework for monitoring financial imbalances needs to be strengthened. Two options are considered. The first is to give the central bank greater responsibility for macrofinancial stability. The second is to establish a new authority, a financial stability council, with the remit to identify systemic risks in the financial sector and propose measures. The recent international financial crisis, sometimes called the Great Recession, has inspired an intense debate about how future crises should be prevented. Those responsible for framing economic policies, as well as economists and financial economists at universities and international organizations such as the IMF and the OECD, grossly underestimated the systemic risks to the financial sector that had accumulated before the crisis.