Is There Macroprudential Policy Without International Cooperation?

26 Pages Posted: 20 Jan 2016

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paul Tucker

Harvard University

Date Written: January 2016

Abstract

In this paper we address three questions: (1) Does global finance require a common prudential standard? (2) Does global finance require international cooperation in overseeing the system's safety and soundness? And (3), does global finance require notification, cooperation and coordination of dynamic regulatory-policy adjustments? Our answer to the first question is that global finance does require a common prudential standard, defined as a level of required resilience, applied appropriately to all parts of the financial system. Without adoption of a common resilience standard, the international financial system will fragment and balkanize. In addressing the second question, we explain why shared, collective analysis is necessary to identify and mitigate stability-threatening shortfalls against that standard for resilience. This will be possible only with increased public and private transparency. Finally, we examine the daunting, but essential, task of implementing a dynamic prudential framework that maintains the system's resilience even as its structure and risk-taking behaviors change. The policy implications of our analysis focus on the need for global agreement, implementation monitoring, information sharing and even, sometimes given damaging spillovers, collective regulatory responses to emerging threats. Institutions will need to be adapted to make all this feasible.

Keywords: Basel Committee on Banking Supervision, financial globalization, Financial Stability Board, financial stability policy, international cooperation, macroprudential policy, prudential policy, stress tests

JEL Classification: F53, F55, F65, G28, G58

Suggested Citation

Cecchetti, Stephen G. and Tucker, Paul, Is There Macroprudential Policy Without International Cooperation? (January 2016). CEPR Discussion Paper No. DP11042. Available at SSRN: https://ssrn.com/abstract=2717591

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-720-8629 (Phone)
212-720-2630 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Paul Tucker

Harvard University ( email )

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