February 23, 2018

BoE published a working paper that focuses on rethinking policies for financial stability. The paper contains an overview of the state of progress on the international regulatory reforms over the past decade, assesses whether these reforms have achieved their objectives, identifies the remaining gaps, and offers suggestions for future research and policy.

The paper explains that global financial crisis had prompted a complete rethink of financial stability and the policies for achieving it. It highlights that additional insights gained since the start of the reforms paint an ambiguous picture on whether the current level of bank capital should be higher or lower. Additionally, the paper presents new evidence that a combination of different regulatory metrics can achieve better outcomes in terms of financial stability than reliance on individual constraints in isolation. It also discusses, in depth, several recurring themes of the regulatory framework, such as the appropriate degree of discretion versus rules, the setting of macro-prudential objectives, and the choice of policy instruments. Finally, the paper concludes with suggestions for future research and policy, including on models of financial stability, market-based finance, the political economy of financial regulation, and the contribution of the financial system to the economy and to society.

 

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Keywords: Europe, UK, Banking, Financial Stability, Market Based Finance, Regulatory Reforms, Basel III, BoE

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