It is less widely recognized that macroprudential regulation can address the second. In many ways, the central bank is ideally suited to bring a macroprudential approach to financial stability. Our mandate demands that we take an economy-wide perspective. Further, we have a strong motivation to maintain a stable, efficient financial system because we rely on it to transmit our monetary policy actions.
However, we do not have many of the tools necessary to secure financial stability. Monetary policy is a blunt instrument, poorly suited to addressing financial imbalances. Instead, macrofinancial stability should be one of the core objectives of financial regulation. Until it is, under the current framework, the Bank can promote financial stability through two tools: liquidity and advocacy.