The Evolution of the Financial Stability Mandate: From Its Origins to the Present Day

Abstract

We investigate the origins and growth of the Financial Stability Mandate (FSM) to examine why bank supervisors, inside and outside of central banks succeeded or failed to meet their FSM. Three issues inform this study: (1) what drives changes in the FSM, (2) whether supervision should be conducted within the central bank or in independent agencies and (3) whether supervision should be rules-or discretion/principles-based. As histories of bank supervision are few, we focus on the history of six countries where there is sufficient information, three in Europe (England, France, and Italy) and three in the New World (U.S., Canada, and Colombia) to highlight the essential developments in the FSM. While there was a common evolutionary path, the development of FSM in each individual country was determined by how quickly each adapted to changes in the technology of the means of payment and their political economy, including their disposition towards competitive markets and openness to the world economy.

Networks in Risk Spillovers: A Multivariate GARCH Perspective

“…We are aware of the limits of this optimization and forecasting exercise but it could be considered an important tool for regulators to use to monitor financial stability. According to the recent review by Toniolo and White (2015) of the financial stability mandate across countries and across history, the principal interventions central banks took to maintain financial stability were liquidity provision and monitoring of the systemically important financial institutions. In our paper, we propose a new econometric tool with the ability to help the regulator fulfill the monitoring requirement once the bilateral exposure data of financial institutions have been collected and are available.…”

Liquidity Ratios as Monetary Policy Tools

“…Banks were registered as any other limited liability company, and were not constrained by any regulation on capital or liquidity. Only banks of issue were regulated and had to keep reserves in function of their note issuance (Toniolo and White (2015)). 10 Without banking regulation, it was of course impossible that a banking regulation tool became a monetary policy tool.…”

An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime

“…Financial stability also suffered in the interwar as most European countries in the 1920s , in the face of deflation and readjustment of competitiveness, suffered banking crises , most of which were not resolved by effective LLR policies ( Feinstein, Temin and Toniolo (1997)) . A number of countries resorted to fiscal bailouts of banks deemed 'Too big to fail' during this period (Toniolo and White 2015).…”

“…After the invention of the financial safety net and deposit insurance banking panics evolved into fiscally resolved crises which have become increasingly expensive to resolve (Bordo and Meissner 2016). Along with crisis management, the regulatory and supervision regime for the financial system went through a lengthy learning process) (Toniolo and White 2015).…”