Fourteenth Annual International Banking Conference

The Role of Central Banks in Financial Stability: How Has It Changed?

In conjunction with the European Central Bank, the Federal Reserve Bank of Chicago held its fourteenth annual International Banking Conference on November 10–11, 2011, at the Bank. The purpose of the annual conference is to address important current issues affecting international financial markets. The conference examined the changing role of central banks in pursuing financial stability.

Prior to the recent financial crisis, there were significant differences across countries in how and to what extent financial stability was pursued by central banks. In some countries, the central bank had an explicit stability objective but did little to actively manage stability other than to ensure liquidity access, out of fear that more active involvement might distort markets. In other countries, the central bank prepared formal stability reports and/or pursued financial stability more actively. Following the global financial crisis, significant reforms have been initiated in many countries to address financial stability more directly, frequently focusing on macroprudential policy frameworks in which central banks play a more active role.

As at past conferences, the emphasis of the conference focused on the implications for public policy. The conference featured keynote presentations by: 

• Peter Praet, European Central Bank
• Willem Buiter, Citigroup
• Janet Yellen, Board of Governors of the Federal Reserve System. 

We are also interested in examining a number of important issues associated with the recent change in emphasis at central banks with regard to financial stability. For example: What were the cross-country differences in emphasis on financial stability in the past? Did these differences appear to affect the extent of the adverse impact of the crisis on individual countries? Can systemic risk be measured and identified? What alternative macroprudential policy tools have been introduced to address systemic risk? Have views changed on how to address sources of financial instability, including asset bubbles? What are perceived to be the major future threats to financial stability? Did the financial sector grow too big within the pre-crisis financial architecture from a social cost–benefit perspective? Might the pursuit of financial stability have adverse societal welfare implications if certain financial activities or innovations are limited or prohibited? How potentially effective might recently introduced reforms be at achieving their stated goals? What major “gaps” still exist? These and related issues will be addressed at the two-day conference.

As usual, the makeup of the conference will truly be international. Participants from some 35 countries regularly participate in the conference and include representatives of central banks, regulatory and supervisory agencies, financial institutions, trade associations and academic institutions from around the globe.