Macro-prudential regulation is a relatively new policy area. We have much experience of how micro-prudential regulation affects the stability of financial intermediaries and markets. A much more complex matter is using regulatory tools to stabilise the financial system as a whole. Having said that, I nevertheless see very encouraging discussions and progress on this front.
For example, the 2009 Geneva Report on the World Economy on “The fundamental principles of financial regulation” points the way to how regulators can determine higher capital requirements for financial intermediaries that exhibit features enhancing systemic risk. 18 Additional capital for interconnectedness, leverage, maturity mismatch and asset growth will limit the scope for the externalities I was discussing before.