New policy instruments emerged as central banks were assigned broad regulatory powers over foreign capital movements, retail banks’ interest rates and the investment of banks’ asset portfolios . Financial market regulation was tightened, but there was little need for active financial stability policy as understood today, given the high level of stability of banking systems overall. Occasional balance-of-payment crises still took place, however.
This regime, which had became established after the Second World War, nevertheless hit a wall in the 1970s. Inflation accelerated to two-digit rates in all leading industrial economies (except for Germany), while unemployment surged to levels higher than ever recorded since the 1930s.