A single speech cannot hope to touch on, much less do justice to, the many theoretical and policy issues encompassed by the term macroprudential. In my remarks this afternoon I will focus principally on the project of recasting the regulation and supervision of large financial firms so as to realize the macroprudential objective of reducing systemic risk.
Very many transactions are undertaken by financial institutions on behalf of non-financial companies in order to mitigate risks of fluctuation of currencies, raw materials etc. Higher costs of such insurance would likely lead to less risk mitigation, or in other words more “speculative” exposures. As regards volatility in financial markets it is doubtful that less liquid markets would reduce such volatility.