On the Origins of the BIS Macro-Prudential Approach to Financial Stability: Alexandre Lamfalussy and Financial Fragility

National Bank of Belgium Working Paper No. 176

41 Pages Posted: 29 Sep 2010

See all articles by Ivo Maes

Ivo Maes

National Bank of Belgium

Date Written: October 9, 2009

Abstract

Among the international policy institutions, the Bank for International Settlements (BIS) is known for its sensitivity to financial stability issues. Attention to the "macro-prudential" dimension of financial stability is very typical for the BIS. The Bank's macro-prudential approach first came to the fore in the 1986 Cross Report. It defined the macro-prudential domain as "the safety and soundness of the broad financial system and payments mechanism". In this paper, it will be argued that Alexandre Lamfalussy, who was at the BIS from 1976 to 1993, played a crucial role in shaping the Bank's approach to financial stability. Lamfalussy is renowned for taking a broad macroeconomic view and for focusing on the systemically important financial institutions, as the failure of one of these individual institutions would threaten the whole financial system. In Lamfalussy's view, there is thus very much an overlap between the micro- and macro-prudential dimensions of financial stability. This paper traces Lamfalussy's analysis of financial fragility and goes into the reasons for his sensitivity to it. Among the main elements involved were: a "Keynesian" Weltanschauung (that a market economy is not sufficiently self-correcting); the emphasis of Dupriez (his teacher in Louvain) on cycles; Lamfalussy's own experience as a commercial banker; BIS involvement in financial stability issues, especially the Latin American debt crisis of 1982-83; and research in the central banking community on financial innovations in the early 1980s.

Keywords: Lamfalussy, BIS, macro-prudential, systemic stability, financial fragility, risk

JEL Classification: A11, B22, B32, E3, F02, G10, N10

Suggested Citation

Maes, Ivo, On the Origins of the BIS Macro-Prudential Approach to Financial Stability: Alexandre Lamfalussy and Financial Fragility (October 9, 2009). National Bank of Belgium Working Paper No. 176. Available at SSRN: https://ssrn.com/abstract=1683333 or http://dx.doi.org/10.2139/ssrn.1683333

Ivo Maes (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
146
Abstract Views
842
rank
199,858
PlumX Metrics