3 March 2008

Past Financial crises, the current financial turmoil, and the need for a new macrofinancial stability framework

LSE Financial Markets Group and Deutsche Bank Conference on “The structure of regulation: Lessons from the crisis of 2007”

Conference sponsored by LSE and Deutsche Bank – 3 March 2008

While it is tempting to focus on new financial innovations in helping explain recent financial turmoil, more traditional causes should not be overlooked. As on many previous occasions, very rapid credit growth led to major increases in asset prices, which in turn encouraged consumption and investment decisions which could yet prove unsustainable. It is suggested in this presentation that the natural “procyclicality” of the financial system could be contained through the introduction of a “New Macrofinancial Stability Framework”. It is recognised that there are many practical impediments to realising such a suggestion, but there are also grounds for belief that these impediments could be removed.

2008 03_White panel intervention LSE conference_ 3 March 2008.pdf