Financial Stability Authorities and Macroprudential Regulation

Abstract

One of the key lessons to come from the global financial crisis (GFC) was that regulation in many jurisdictions was missing an overarching policy framework for financial stability. In response, reformers have increasingly looked to macroprudential policies to plug this regulatory gap. One common feature in the aftermath of the GFC has been for jurisdictions to create financial stability authorities so as to provide regulators with the power to regulate in a manner that prevents financial instability. This paper explores the establishment, rationale and operation of financial stability authorities in the UK and the USA and finds that despite ostensibly being created to deal with the same problem, the UK and USA financial stability authorities exhibit significant differences in their construction and authority, which may impact on their ability to address financial stability.

Keywords: financial stability; macroprudential policies; financial regulation