International coordination will be needed to deal with any negative effects of national attempts to snuff out asset bubbles, top financial firms said in a World Economic Forum paper.
Asset manager BlackRock, HSBC bank, insurer Generali and others said in the WEF paper that they back so-called macroprudential policy tools being rolled out by central banks on both sides of the Atlantic but urged caution.
Macroprudential policy is relatively new in developed economies and refers to using targeted, often temporary intervention to stop asset bubbles that could destabilize the broader financial system
New risk watchdogs have been set up in the United States, Britain and the European Union to spot such broader risks, hoping to plug a supervisory gap highlighted by the costly 2007-09 financial crisis that few regulators saw coming.
The Bank of England’s Financial Policy Committee, for example, has introduced curbs to cool Britain’s mortgage market in a way that avoids using the much blunter tool of raising interest rates.
The paper from the WEF, an international body for debating economic issues, says coordination between such risk watchdogs is becoming critical to limit possible spillovers.
“In addition, it is important to continue to monitor the possible unintended consequences of these regulations,” the paper, with input from Oliver Wyman consultancy, said.
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