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An emphasis will be on systemic risk and prudential policies in peripheral economies.
Many countries have used prudential policies in an attempt to manage excessive pro-cyclical capital flows, such as Korea, Brazil and Chile.
"Excessive optimism on the part of creditors and inexperienced banks combined with inadequate prudential policies lead to excessive leverage," he wrote.
However, enhancing the policy framework through improved financial regulation and articulated monetary and prudential policies, in order to ensure both financial and macroeconomic stability may not be enough if some underlying trend of stagnation is at play.
First, while some division of labor between monetary policy and macroprudential regulation may be maintained in their combined application (Canuto and Cavallari), policy-makers need to make sure that prudential policies are mutually consistent and comprehensive enough to avoid regulatory arbitrage and exploration of loopholes.
After all, any use of either monetary or prudential policies on their own under those circumstances might have led to contradictory and self-defeating impacts on those two objectives: simply hiking interest rates would attract more capital inflows; and restraining credit supply with no policy interest rate increase would lead to channeling demand for credit to other intermediation vehicles.
Similar(52)
But Paul Sharma, FSA director of prudential policy, said it was crucial to learn the lessons from the financial crisis.
Paul Sharma, the regulator's director of prudential policy, said the agency was the first major regulator to introduce tighter liquidity rules for companies.
Monetary policy — the toolbox of central banks — as well as an economy-wide prudential policy that limits risky lending, needs to be proactive and take steps before a crisis occurs, Brunnermeier said.
This paper argues that these four paradigms have markedly different prudential policy implications.
First, our results are consistent with the new prudential policy measures on limiting the ex-ante banks' incentives to take on excessive risk-taking.
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