Would macroprudential regulation have prevented the last crisis?

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 03 August 2018

Staff Working Paper No. 747
By David Aikman, Jonathan Bridges, Anil Kashyap and Caspar Siegert

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.

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