In the event of a financial shock, a crucial factor for the severity of the crisis is to what extent the financial sector is stable, and whether it is possible to contain negative feedback effects within the macroeconomy. The financial system’s recent track record in this respect has not been wholly convincing, to put it mildly.
Therefore, one central question on the global political agenda is “how to better ensure financial stability?”. Comparing the stability of our financial and monetary system with a building that has to withstand a substantial earthquake, the two columns monetary policy and microprudential supervision – which supported that building and which we believed to be strong enough – turned out to be insufficient.