In Hong Kong, for example, tighter down payment rules reduce household leverage and the sensitivity of defaults to changes in property prices, and have been shown to slow property appreciation. Prudential supervision for all financial institutions I don’t mean to suggest that all asset bubbles can be addressed by merely implementing some set of regulatory policies. Indeed, how easy our jobs would then be!
In practice, such policies work best if they are part of a system of prudential supervision for all financial institutions. Of course, in the U.S. economy, savers and borrowers are linked not only through intermediaries like banks, but also through nonbanks, such as money market mutual funds and hedge funds, and through the capital markets and securitization.