Andrew G Haldane: Rethinking financial stability

Speech by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of England, (co-authored with David Aikman, Sujit Kapadia and Marc Hinterschweiger), at the "Rethinking Macroeconomic Policy IV" Conference, Peterson Institute for International Economics, Washington DC, 12 October 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

The theme of this conference is "Rethinking Macroeconomic Policy".  When it comes to financial stability, that theme could hardly be more appropriate.  The global financial crisis has been the prompt for a complete rethink of financial stability and policies for achieving it.  Over the course of the better part of a decade, a deep and wide-ranging international regulatory reform effort has been underway, as great as any since the Great Depression.   

On cost grounds alone, a systematic rethink and reform of regulatory standards has been fully justified.  While the costs of the global financial crisis are still being counted, it seems likely they will be the largest since at least the Great Depression.  Two approaches are typically used to gauge these costs of crisis:  the cumulative loss of output relative to its trend and the cumulative fiscal costs of supporting the financial system.  Let's take these in turn.