It appears to have originated in specific contrast to traditional banking regulation, which a 1979 background paper at the BIS characterized as focused on “sound banking practice and the protection of depositors at the level of the individual bank.”5 In fact, much of the New Deal legislation that would define the financial regulatory structure for more than 40 years was in direct response to what we would today call systemic concerns, including banking panics and excessive leverage in equity markets.6 In the late 1970s, though, there was indeed reason for the development of an explicitly macroprudential perspective.
It was a direct and important response to the lack of trust the foreign exchange industry had been suffering on the back of a number of instances of misconduct in the market and the associated multi-billion dollar fines. This lack of trust was evident both between participants in the market and, at least as importantly, between the public and the market.