Eggertsson, G., and P. Krugman (2012): “Debt, Deleveraging, And the Liquidity Trap: A Fisher-Minsky-Koo Approach”, Quarterly Journal of Economics, 1469-1513. FCA (2017): FCA Handbook. https://www.handbook.fca.org.uk/handbook/MCOB/ (Accessed 6 February 2017). FCA (2017): “Illiquid assets and open-ended investment funds”, Discussion Paper 17(1). https://www.fca.org.uk/publication/discussion/dp17-01.pdf Financial Stability Board (2017): “Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities”, 12 January. http://www.fsb.org/2017/01/policy-recommendations-to-addressstructural-vulnerabilities-from-asset-management-activities/ Forbes, K., and F. Warnock (2012): “Capital Flow Waves: Surges, Stops, Flight, and Retrenchment”, Journal of International Economics, 88(2), 235-251. Frame, W. S., Gerardi, K., and P. Willen (2015): “The failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO”, Federal Reserve Bank of Boston Working Paper 15 (4). Goldstein I., Jiang W., and D. Ng (forthcoming): “Investor Flows and Fragility in Corporate Bond Funds”, Journal of Financial Economics. Haldane, A. (2013): “The Commercial Property Forum twenty years on”, Remarks given at the Bank of England (November). http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech701.pdf International Monetary Fund (2008): “Containing Systemic Risks and Restoring Financial Soundness”, Global Financial Stability Report, April. https://www.imf.org/External/Pubs/FT/GFSR/2008/01/index.htm International Monetary Fund (2009): “Responding to the Financial Crisis and Measuring Systemic Risks”, Global Financial Stability Report, April. https://www.imf.org/External/Pubs/FT/GFSR/2009/01/index.htm International Monetary Fund (2010): “Meeting New Challenges to Stability and Building a Safer System”, Global Financial Stability Report, April. https://www.imf.org/external/pubs/ft/gfsr/2010/01/index.htm International Monetary Fund (2011): “Macroprudential Policy: An Organising Framework”, March. IMF-FSB-BIS (2016): Elements of Effective Macroprudential Policies: Lessons from International Experience, August. http://www.imf.org/external/np/g20/pdf/2016/083116.pdf. Ivashina V., and D. Scharfstein (2010): “Bank Lending During the Financial Crisis of 2008”, Journal of Financial Economics, 97(3), 319-338.
They conclude that setting macro-prudential policy on the basis of these indicators might have procyclical effects: it would facilitate the build-up of systemic imbalances during booms, and their amplification during busts. Crockett (2000) had the foresight to argue that “The received wisdom is that risk increases in recessions and falls in booms. In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materialising in recessions.” 13 The FPC’s statutory mandate includes a responsibility to identify risks; see Financial Services Act (2012). 14 Jordà et al (2013) use data for 14 advanced countries between 1870 and 2008 and find that more credit-intensive booms are typically followed by slower recoveries and deeper recessions. This is true both for recessions that follow financial crises and those that do not. 15 Eggertsson and Krugman (2012), present a new Keynesian model in which aggregate demand is depressed when indebted agents are forced into a rapid deleveraging. If this deleveraging is large enough it can push interest rates to the zero lower bound. Korinek and Simsek (2016) show that this can result in an aggregate demand externality which can be corrected through pre-emptive macroprudential policy. 16 Dynan (2012) uses household-level data for the US and finds that between 2007 and 2009 declines in spending were larger for highly leveraged homeowners. 17 Campbell et al (2011) find that foreclosed houses have an average sale price discount of 27%, using 20 years of data for Massachusetts.