In a talk delivered on 3 January, which the ever-so-slightly disorganised Andy Haldane has just got round to writing up, the Bank of England’s head of financial stability beautifully sets out the new central bank orthodoxy on the benefits of macro-prudential policy.
First, he clearly defines the term:
“In a nutshell, it means that policymakers have begun using prudential means to meet macro-economic ends.”
Next, he looks back at the crisis and asks the correct question: what would have been different had macro-prudential policy been fashionable (it was invented) rather than deeply unfashionable in central banking circles. Read more
There could be serious financial turmoil when the Fed eventually raises interest rates, even without a lot of leverage in the financial system, according to this year’s paper at the US Monetary Policy Forum in New York. If the analysis is correct then it is an argument against very easy monetary policy – but the paper is quite limited.
(The USMPF, organised by the Chicago Booth business school, is a once-a-year event where a group of market economists present a paper to a gathering of Fed pooh-bahs. The authors this year are Michael Feroli of JP Morgan, Anil Kashyap of Chicago Booth, Kermit Schoenholtz of NYU Stern and Hyun Song Shin of Princeton.) Read more
A familiar consequence of crises is a flight to quality. This crisis is no exception, with gold soaring to nominal highs and the Swiss franc appreciating against pretty much every other currency on the planet.
However, owing to two decades’ worth of financial globalisation, a trend more pronounced during this crisis than any other was that this shift to safe-haven assets was coupled with a flight of capital across borders. As European Central Bank research, out on Wednesday, notes, investors were not only risk averse, but also fearful of uncertainty. And this so-called “uncertainty aversion” fed home bias.
The capital flight threatened financial stability and hindered economic growth. So what to do? For the ECB, there are two things: better analysis and more regulation. Read more
A barometer of the Bank of England’s interest, or otherwise, in financial stability has been to calculate the proportion of expenditure devoted to it relative to monetary policy.
Take a recent grilling of chairman of the Bank’s court Sir David Lees, and some of his fellow members, by Treasury Committee chair Andrew Tyrie: Read more
Both Federal Reserve chairman Ben Bernanke and Bank of Japan governor Masaaki Shirakawa were speaking today at the BOJ’s annual international conference.
Mr Bernanke’s speech was a by-the-numbers defence of central bank independence. It was interesting that he felt the need to mount it but there wasn’t much new in what he said. Read more
Mauro Grande has been upgraded. The director of the Directorate Financial Stability and Supervision has just been made Director General as the Directorate itself has been upgraded to a Directorate General. Ah, the machinations of the ECB. The change is effective today.
Very hawkish speech from Tom Hoenig today. He worries that staying too low for too long will generate financial stability risks and misallocation of resources as well as inflation risks.
In doing so he more or less explicitly rejects Bernanke’s weekend claim that keeping rates low after the dotcom bust had little or nothing to do with the housing and credit bubbles. Read more
European banks have been slow to recognise losses from the recession and need to raise huge quantities of new capital if they are to lend sufficient sums to support a recovery, writes Chris Giles of the Financial Times, and two IMF charts reveal all you need to know. Read more