New Financial Stability Governance Structures and Central Banks

We evaluate the institutional frameworks developed to implement time-varying macroprudential policies in 58 countries. We focus on new financial stability committees (FSCs) that have grown dramatically in number since the global financial crisis, and their interaction with central banks, and infer countries’ revealed preferences for effectiveness versus political economy considerations. Using cluster analysis, we find that only one-quarter of FSCs have both good processes and good tools to implement macroprudential actions, and that instead most FSCs have been designed to improve communication and coordination among existing regulators. We also find that central banks are not especially able to take macroprudential actions when FSCs are not set up to do so. We conclude that about one-half of the countries do not have structures to take or direct actions and avoid risks of policy inertia. Rather countries’ decisions appear to be consistent with strengthening the political legitimacy of macroprudential policies with prominent roles for the ministry of finance and avoiding placing additional powers in central banks that already are strong in microprudential supervision and have high political independence for monetary policy. The evidence suggests that countries are placing a relatively low weight on the ability of policy institutions to take action and a high weight on political economy considerations in developing their financial stability governance structures.