Only punitive interest rates during the boom years could have prevented the "great recession," and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch. The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said."Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy," Mr Bean said.
Only punitive interest rates during the boom years could have prevented the "great recession," and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.
In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.
But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch.
The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said.
"Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy," Mr Bean said.
Aug. 29 (Bloomberg) -- Central bankers and economists at a Federal Reserve symposium clashed over how to best contain asset-price bubbles three years after a crash in U.S. housing prices led to the worst global recession since World War II. Bank of England Deputy Governor Charles Bean told the meeting in Jackson Hole, Wyoming, yesterday that regulatory tools would be most efficient at deflating a boom without inflicting broad economic damage. Stanford University Professor John Taylor, creator of an interest-rate-setting formula used by central banks, said the tools are "unproven" and using them may cause central bankers to lose focus on adjusting rates properly. "In a sense, the Fed caused the bubble" in home prices, said Taylor, a former Treasury undersecretary for international affairs. "A priority would therefore be not to create bubbles in the first place," he said in an interview during a break.
Aug. 29 (Bloomberg) -- Central bankers and economists at a Federal Reserve symposium clashed over how to best contain asset-price bubbles three years after a crash in U.S. housing prices led to the worst global recession since World War II.
Bank of England Deputy Governor Charles Bean told the meeting in Jackson Hole, Wyoming, yesterday that regulatory tools would be most efficient at deflating a boom without inflicting broad economic damage. Stanford University Professor John Taylor, creator of an interest-rate-setting formula used by central banks, said the tools are "unproven" and using them may cause central bankers to lose focus on adjusting rates properly.
"In a sense, the Fed caused the bubble" in home prices, said Taylor, a former Treasury undersecretary for international affairs. "A priority would therefore be not to create bubbles in the first place," he said in an interview during a break.
In a major speech to the Jackson Hole Economic Policy Symposium in America which is likely to get a cool reaction from the banking sector, Charles Bean said that the Bank had been powerless to prevent what he called "the Great Contraction" of 2008. He said that the control of interest rates was not, in itself, a powerful enough tool. Under a new "macro-prudential policy" - details of which will be revealed in the Financial Services Regulation Bill later this year - its powers will be more sweeping. In his speech, Mr Bean gave examples of the sort of powers that could underpin such a policy. These included the right to force banks to build up extra reserves during boom times, increase risk-weights on high-risk lenders and impose loan-to-value ratios in the mortgage market. "Monetary policy seems too weak an instrument reliably to moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity," Mr Bean told his audience of policy makers and economists. "Instead, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem. That is what 'macro-prudential policy' is supposed to achieve."
Under a new "macro-prudential policy" - details of which will be revealed in the Financial Services Regulation Bill later this year - its powers will be more sweeping.
In his speech, Mr Bean gave examples of the sort of powers that could underpin such a policy. These included the right to force banks to build up extra reserves during boom times, increase risk-weights on high-risk lenders and impose loan-to-value ratios in the mortgage market.
"Monetary policy seems too weak an instrument reliably to moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity," Mr Bean told his audience of policy makers and economists.
"Instead, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem. That is what 'macro-prudential policy' is supposed to achieve."
I would note that the Federal Reserve Bank in the US had such powers explicitly since the early '90s but refused to use them. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
