Having said that, central banks – with their strong technical skills, independent judgement and system-wide, longer-term perspective – are perhaps better placed to assess systemic risks emerging from financial markets. This can prompt informed communication to the financial system and to the wider public and, at times, also monetary policy action.
As it is the case in general when confronting low-probability but high-cost events, it may be optimal to choose to err on the side of caution if this helps to reduce the likelihood of future crises. 6 Fourth, as recently recognized by Adrian and Shin among others, in a market based financial system, banking and capital developments have become inseparable.