The History of Cyclical Macroprudential Policy in the United States

Douglas J. Elliott · Gregory H. Feldberg · Andreas Lehnert

113 citations0/0 files storedFinance and Economics Discussion Series

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Banking stability, regulation, efficiency Monetary Policy and Economic Impact Global Financial Crisis and Policies

Abstract

Since the financial crisis of 2007-2009, policymakers have debated the need for a new toolkit of cyclical 'macroprudential' policies to constrain the build-up of risks in financial markets, for example, by dampening credit-fueled asset bubbles. These discussions tend to ignore America's long and varied history with many of the instruments under consideration to smooth the credit cycle, presumably because of their sparse usage in the last three decades. We provide the first comprehensive survey and historic narrative of these efforts. The tools whose background and use we describe include underwriting standards, reserve requirements, deposit rate ceilings, credit growth limits, supervisory pressure, and other financial regulatory policy actions. The contemporary debates over these tools highlighted a variety of concerns, including 'speculation,' undesirable rates of inflation, and high levels of consumer spending, among others. Ongoing statistical work suggests that macroprudential tightening lowers consumer debt but macroprudential easing does not increase it.

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References

1998The Financial Accelerator in a Quantitative Business Cycle Framework 1999Chapter 21 The financial accelerator in a quantitative business cycle framework 2012Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008 2009Money, Liquidity, and Monetary Policy 1999The Financial Instability Hypothesis 2011The financial crisis inquiry report: final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States 2010The term "macroprudential": origins and evolution 1993Reserve Requirements: History, Current Practice, and Potential Reform

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