mario bergara : financial stability nets – complementing and reinforcing micro and macro perspectives speech by mr mario bergara, governor of the central bank of uruguay, at the opening of the 9th meeting of the iadi latin america regional committee ( larc ), punta del este, 21 march 2012. * * * the speech is based on an article prepared by messrs mario bergara, gerardo licandro and jorge ponce for the conference “ macroprudential policies to achieve financial stability ”, hosted by the central bank of uruguay and the international monetary fund, punta del este, 29 february – 2 march 2012. the views expressed herein are those of the authors and do not necessarily represent the view of the banco central del uruguay. 1. lessons from the crisis : what is new? the aftermath of the 2008 global financial crisis witnessed a surge on the discussion of financial stability issues. in some countries the focus of the debate is on the role of the shadow financial system, its relationship with banks, and the regulatory and supervisory failure to address the problem of regulatory arbitrage. in europe, the main concerns lies on the lack of a european safety net, mainly due to the absence of a european lender of last resort. in emerging countries, however, the discussion is centered around the impact of the crisis on the volatility of capital flows and the architecture of the international financial system. though some of the phenomena underlying the origins and depth of the financial crisis were either new or located in new instruments and markets, most of the issues that were raised during this episode can be traced back to the first financial crisis of the world. in the following lines, we develop the argument that even though financial stability concerns are as old as financial systems, and despite some of the main lessons of the recent crisis look pretty much alike the lessons of several financial episodes of the past ( to which many jurisdictions have already reacted ), there are good reasons to heighten our concern with financial stability. financial stability arises as a main concern, despite the fact that the concept is neither new, nor the main explanation for the collapse the world experienced in 2008. the crisis revealed the existence of regulatory failures at different levels, as well as problems in the design of the financial safety nets both at the national and international level. in what appears to be nearly a paradox, regulatory failure has remained in the background overshadowed by the concentration of policy making bodies in financial stability. financial stability concerns have had an impact on the management

the same side of the regulatory perimeter and then subject to the same kind of regulations and controls. bis central bankers ’ speeches uruguay represents a particular case in latin america where the law gives powers to the financial sector regulator and supervisor to adjust the regulatory perimeter in order to fulfil its mandate of preserving the stability of the financial system. centralized regulation. the regulation of financial institutions should be centralized in a unique regulator. the existence of many agencies regulating the same financial institution ( e. g. in an activity - based regulatory framework ) may imply important overlaps in regulatory requirements or important gaps where important activities that should be regulated escape regulation. moreover, financial markets are naturally dynamic and financial institutions and markets ( e. g. banks and other intermediaries, pension funds, insurance and capital markets ) show important interlinks which justify the need for a large level of consistency thought different regulations. more centralization of financial regulation may imply lower bureaucratic costs, economies of scale and scope, the use of a conglomerates logic and lower regulatory arbitrage. these advantages from concentrating financial regulation may be traded off the potential advantages from a less concentrated financial regulation ( e. g. efficiency gains due to specialization ). the rules and tools used by the centralized regulator should consider micro - and macroprudential risks. otherwise stated, the financial regulator should take both prudential perspectives into consideration when writing rules and using regulatory tools and instruments. hence, the financial regulator should receive as a clear and explicit mandate not only to ensure the stability of individual institutions and markets, but also to guarantee the stability of the whole financial system. other aspects that are related to the governance of the financial regulator and its relationship with other agencies are analysed in section 5. 4. 2 implications of micro - prudential concerns on macroeconomic polices micro prudential policy has a direct impact on macroeconomic policy, but experience shows that the reciprocal is also true. changes in regulation and supervision affect the power, reach and timing of macro policies. leaving aside the obvious effects in crisis times, it is well known the impact of regulation and supervision on the development of financial markets and credit. changes on the development of financial markets have a direct effect on the power of monetary policy. changes in credit affect might affect consumption and therefore fiscal revenues. the recent crisis has highlighted the potential effect of failure in regulation and supervision on the creation of asset price bubbles. if we add those “ normal time ” effects to the ones generated during times