Table of Contents

The Financial Crisis and the Regulation of Finance

The Financial Crisis and the Regulation of Finance

Edited by Christopher J. Green, Eric J. Pentecost and Tom Weyman-Jones

The 2007–08 financial crisis has posed substantial challenges for bankers, economists and regulators: was it preventable, and how can such crises be avoided in future? This book addresses these questions. The Financial Crisis and the Regulation of Finance includes a comprehensive overview of the crisis and reviews the theory and practise of regulation in the UK and worldwide. The contributors – all international experts on financial markets and regulation – provide perspectives and analysis on macro-prudential regulation, the regulation of financial firms, and the role of shareholders and disclosure.

Chapter 7: Implementing the Macroprudential Approach to Financial Regulation and Supervision

Claudio Borio

Subjects: economics and finance, financial economics and regulation, money and banking


Claudio Borio INTRODUCTION1 Banking and regulatory issues have always been central to David Llewellyn’s illustrious career as an academic, policy advisor and public servant. He has proved to be a particularly acute observer of trends in the banking industry (Llewellyn, 1999a). Above all, he always explored those trends not in the abstract, but with the objective of deriving implications for public policy. It is this natural inclination to pursue the public interest, I think, that explains his strong focus on regulation and supervision (Llewellyn, 1986, 1999b and Goodhart et al., 1998). In analysing these issues and in drawing policy prescriptions, Llewellyn’s trademark has been a distinct and effortless mix of intellectual rigour and British pragmatism. We have all learnt a lot from him. In what follows, I develop some reflections on a theme in regulation and supervision that has come to prominence in the wake of the recent financial crisis. Recent international reports have recommended that financial regulatory and supervisory frameworks strengthen their macroprudential orientation (G20, 2009 and de Larosière et al., 2009). The term has become so well accepted that, paraphrasing Milton Friedman, one could say that ‘we are all macroprudentialists now’. And yet, a decade ago, the term was barely used and it would have been hard for supervisors to recognise that their tasks involved a significant macroprudential dimension, let alone that it would have been desirable to strengthen it. In fact, the term is not new. At the Bank of International Settlements (BIS), its usage goes...

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