Is resilience enough? The macroprudential reform agenda and the lack of smoothing of the cycle

Date01 September 2019
Published date01 September 2019
AuthorMatthias Thiemann
Is resilience enough? The macroprudential reform
agenda and the lack of smoothing of the cycle
Matthias Thiemann
Sciences Po Centre détudes Européens, Paris,
Matthias Thiemann, Sciences Po Centre
détudes Européens, 27 rue Saint Guillaume,
Paris 75007, France.
Funding information
Institute for Advanced Studies Paris
After the financial crisis, central banks were entrusted with imple-
menting an ambitious macroprudential reform agenda. The goal
was arguably twofold: to increase the resilience of the financial sys-
tem and to lower the amplitudes of the financial cycle. A decade
later, the implementation of the agenda is characterized by the pur-
suit of measures to raise the resilience of the financial system,
while tools to smoothen the cycle have been rather sidelined. To
explain this difference in implementation efforts, the article com-
bines ideational scholarship with the analytical stance of reputa-
tional theory and analyses the technocratic debate over
macroprudential strategy among policy-makers of the Fed, the
Bank of England (BoE) and the European Central Bank (ECB). The
article identifies reputational concerns linked to the need for dis-
cretionary interventions, the uncertain scientific status of the con-
cept of the cycle and missing metrics as causes for concern, leading
most central banks to shy away from forcefully implementing this
policy goal.
After the financial crisis of 200709, G20 leaders embraced a new macroprudential approach to financial regulation
to address the policy failures revealed by the crisis (G20 2009), which were ascribed at least partially to a micropru-
dential approach to financial regulation. The latter had only focused on the risk-bearing capacity of individual institu-
tions and had delegated much of this risk-bearing analysis to private agents (Lockwood 2015; Tsingou 2015),
completely missing the build-up of systemic risks during the boom years of the 2000s, which found its expression in
above trend credit growth in the Western world, increasing leverage of financial institutions as well as increasing
interconnectedness (Borio 2009). Not surprisingly then, the macroprudential approach which focused on these
system-wide developments was hailed as a much-needed paradigm shift by policy-makers and pundits alike (Baker
2013a, 2014; Borio 2009). Consequently, regulators were tasked to focus also on the build-up of systemic risks in
the financial system rather than on risks for individual institutions alone. On the one hand, they were expected to
improve the resilience of the system, increasing its capacity to withstand shocks. On the other hand, measures were
to be introduced to mitigate the boom-and-bust cycles of financial markets, limiting excessive credit provision to the
economy that threatens financial stability (Borio 2009).
Received: 21 February 2018 Revised: 7 July 2018 Accepted: 7 August 2018
DOI: 10.1111/padm.12551
Public Administration. 2019;97:561575. © 2018 John Wiley & Sons Ltd 561

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