Central banks as macroprudential authorities: economics and politics

The 2007-2008 global financial crisis (GFC) highlighted the need for financial stability. Reforms of financial regulation in numerous countries were motivated by the fact that only paying attention to monetary stability and micro supervision (the stability of individual institutions and markets) was not enough to guarantee the safety and soundness of the financial industry. A broader approach, known as macroprudential policy (the use of prudential tools to mitigate systemic risk),1 was deemed necessary for ensuring the resilience of the financial system as a whole.