Simple Rules for Financial Stability
Type:
SIEPR Discussion Paper 12-031
Author(s):
Published:
04/9/13
Abstract:
This paper considers three simple rules-based strategies to improve and maintain financial
stability. The first reforms the rules of bankruptcy to handle large financial institutions with a
minimum of disruption. The second would focus macro-prudential policy on setting permanent
and appropriate capital and subordinated debt ratios rather than discretionary countercyclical
adjustments. The third would re-establish a rules-based monetary policy. Taken together these
three reforms would constitute a sound overall strategy to improve financial and economic
stability.
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