Many observers have argued the regulatory framework in place prior to the global financial crisis was deficient because it was largely “microprudential” in nature (Crockett, 2000; Borio, Furfine, and Lowe, 2001; Borio, 2003; Kashyap and Stein, 2004; Kashyap, Rajan, and Stein, 2008; Brunnermeier et al., 2009; Bank...

From the perspective of financial network stability analysis achieved by studying the network formed with linkages of individual financial institutes, this article aims to delve into the monitoring, warning, and analyzing of the systematic risk of the financial system as a whole, which is the...

Since the 2008/09 financial crisis, the international regulatory community has taken steps to reduce the probability of future significant financial instability. So far, the emphasis has been on tougher capital and liquidity regulations for banks and greater transparency for financial products,...

This article examines the potential efficacy of macro-prudential financial regulation as a mechanism for preventing future systemic crises. I argue that the potential efficacy of macro-prudential financial regulation will be undermined by (1) the complexity of financial markets and our...

We present a novel approach that incorporates individual entity stress testing and losses from systemic risk effects (SE losses) into macroprudential stress testing. SE losses are measured using a reduced-form model to value financial entity assets, conditional on macroeconomic stress and the...

I study central supervision of local financial regulators in an economic union. Regulators each privately observe benefits from lenient local macroprudential policies. Separate deposit insurance funds allow no discretion to set policies because, with integrated financial markets, regulators...

In recent years, the question of how to prevent another crippling re-cession has become a prominent one. The answer provided by the Dodd-Frank Act is stress testing, which examines through economic models how banks would react to a bad turn of economic events, such as negative interest rates....

It is frequently argued that the causes of financial crises are attributed to capital crises, liquidity crises and pro cyclical related issues. The focus accorded by the Basel Committee on Banking Supervision to capital requirements – as opposed to liquidity standards, has also provided...

The financial crisis of 2008, like the pandemic Spanish flu 90 years prior, spanned the globe twice and caused substantial destruction. It also introduced an entirely new lexicon of economic and regulatory terminology, such as “contagion” and “systemic shock,” into the popular and...

The standard macroprudential models focus on externalities and treat all prudential instruments as alternative, but equivalent, forms of Pigouvian taxes. This paper explicitly models individual banks’ risk choices and shows that different prudential instruments affect banks’ risk-taking...