If, for example, the Congress creates a council of regulators with, among other responsibilities, the task of issuing periodic financial stability reports, the public at large will have ample opportunity to comment on the council’s analyses.
This facilitates the build up of leverage in the financial system and exposes institutions to losses when the credit cycle turns. Monetary policy will have to be more conscious in future of the risk of accommodating excessive credit expansion and the unsustainable rise in asset prices that often accompanies it. III.