jeremy c stein : lean, clean, and in - between speech by mr jeremy c stein, member of the board of governors of the federal reserve system, at the national bureau of economic research conference “ lessons from the financial crisis for monetary policy ”, boston, massachusetts, 18 october 2013. * * * the thoughts that follow are my own, and are not necessarily shared by my colleagues on the federal open market committee. i am grateful to tim clark, andreas lehnert, nellie liang, ben mcdonough, and lisa ryu for their input. thank you. the theme of this conference is, “ lessons from the financial crisis for monetary policy. ” given the opportunity to speak about this topic, my first thought was that i should organize my remarks around the familiar “ lean versus clean ” debate. the traditional, precrisis framing of the question went something like this : should policymakers rely on ex ante measures to lean against potential financial imbalances as they build up, and thereby lower the probability of a bad event ever happening, or should they do most of their work ex post, focusing on the clean - up? post - crisis, the emphasis in the debate has shifted. i think it ’ s safe to assume that nobody in this room would now argue that we should be putting all our eggs in the “ clean ” basket. discussion these days tends to focus instead on which ex ante measures are best suited to safeguard financial stability. among these, there seems to be widespread support for unconditional, ( i. e., time - invariant ) tools that increase the overall resiliency of the financial system to shocks. these tools include more robust capital and liquidity requirements, as well as an enhanced capability to resolve a large financial institution that finds itself on the brink of failure. they might also include universal margin requirements on securities financing transactions, as a way of mitigating fire - sales risks. we might argue about various aspects of calibration and implementation, but i don ’ t think there is too much controversy about the basic proposition that strong, comprehensive regulation aimed at enhancing resiliency is essential. there is considerably less agreement about the desirability and effectiveness of ex ante measures that seek to lean against the wind in an explicitly time - varying fashion – that is, measures that can be adapted in response to changing economic or financial conditions. at the risk of caricature, one can distinguish three schools of thought. the first school is generally

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