Out of this intellectual vacuum, a new framework for regulation has been born – macroprudential regulation. This explicitly recognises the links that might tie together individual nodes in the financial system. These might arise from correlated asset exposures, the type of which has historically emerged during the upswings and downswings of the credit cycle (Aikman et al (2015)). Or they might emerge from financial exposures, on- or off-balance sheet, between intermediaries operating in the global financial web (Haldane and May (2011), Arinaminpathy, Kapadia and May (2012)). Over the past decade, a lot has been written in the area of macroprudential policy (Galati and Moessner (2013), Aikman et al (2013), Freixas et al (2015)). A sizeable number of countries are now undertaking macroprudential policy in some shape or form. Table 5 in the Annex provides a rough summary of current international macroprudential practices (for a more comprehensive overview, see Cerutti et al (2017)). By any historical metric, however, macroprudential policy remains a fledgling framework. Understandably, many of its key facets remain contentious. And the macroprudential policies put in place internationally so far are more notable for their differences than their similarities. This is providing a diverse body of case law. We discuss two key aspects of this framework: its appropriate objectives; and the choice of instruments. Objectives of Macroprudential Policy  The Bank of England entered the debate on the potential role of macroprudential policy in a discussion paper published in 2009 (Bank of England (2009)).

With that in mind, we conclude with some thoughts on issues which might be fruitful for future research on regulatory policy. International Regulatory Reform  There are already a number of detailed accounts of the regulatory reforms undertaken by international policymakers over the past decade (Carney (2017b), Duffie (2017), FSB (2017a), Greenwood et al (2017), Sarin and Summers (2017), Yellen (2017)). The following is a summarised and simplified account of the state of play. It partitions reform efforts into their microprudential and macroprudential components, recognising that the two often overlap and are usually mutually reinforcing in their impact. We focus here squarely on international banking regulation. We do not cover insurance regulation or international accounting standards. We do not discuss regulatory reforms undertaken nationally, such as the “Volcker Rule” in the US (Financial Stability Oversight Council (2011)) and the “Vickers proposals” in the UK (Independent Commission on Banking (2011)). Nor do we discuss international reforms of market infrastructure – for example, clearing – and financial market instruments (FSB (2017b)). Finally, we do not cover changes to banks’ large exposures regime and a range of pay and governance reforms. Microprudential Reform  Under the umbrella of Basel III, international reform of microprudential regulation has focused on four key areas: capital, leverage, liquidity and resolution. Taking these in turn:  Reform of risk-based capital standards has focused on increasing the quantity and quality of capital held by banks against their asset exposures.