Are central banks equipped for their financial stability role?
My view is that most are but that their state of readiness can be significantly improved. It is easily observed that some central banks have or share responsibility for bank supervision while others do not. Matters differ on either side of the Tasman Sea; the major ASEAN central banks and the Reserve Bank of India are all also bank supervisors; Korea and Japan are in a position more analogous to that of the United Kingdom, with a separation between central banks and supervisors. And it should not be too controversial to say that central banks that also have supervisory powers are well placed to add a macro overlay to their firm-by-firm supervision. By contrast, those without such powers will need to find other ways to influence macroprudential settings. Indeed, one might argue that the Asian central banks have been ahead of the curve with the use of macroprudential tools. No matter whether the institutional assignment of prudential supervision is to the central bank or not, the recent
