Note: FT Alphaville is now playing host to posts from the FT’s Money Supply box. Enjoy (and argue away, if you see fit). Here’s Robin Harding, the FT’s US economics editor…


Stanley Fischer’s first speech as vice-chair of the Fed was impressively dull: he is truly a man who knows the job of a central banker. There has been some attention to his remark that “actively breaking up the largest banks would be a very complex task, with uncertain payoff”, but that is boilerplate for Fed officials these days.

Mr Fischer’s most interesting remarks relate to his experience with macroprudential policy in Israel. Israel’s bank supervisor used a range of tools to restrict mortgage lending and try to avert a housing bubble. Mr Fischer draws three lessons:

“First, the Bank of Israel did not have good empirical estimates of the effectiveness of the different macroprudential measures. This problem is likely to be relevant in many countries in large part because we have relatively little experience of the use of such measures in recent years. Policymakers may thus be especially cautious in the use of measures of this type.”

“Second, measures aimed at reducing the demand for housing are likely to be politically sensitive. Their use requires either very cautious and well-aimed measures by the regulatory authorities, and/or the use by the government of subsidies to compensate some of those who end up facing more difficulty in buying housing as a result of the imposition of macroprudential measures.”

“Third, there is generally a need for coordination among several regulators and authorities in dealing with macroprudential problems of both types.”

With the second and third lessons, in particular, Mr Fischer conveys a sense of doubt about this kind of active macroprudential policy in the US. It is hard to imagine Congress subsidising those who lose out because of a Fed action. On his third point, Mr Fischer suggests a need to give more power to the Financial Stability Oversight Council – but again, there is little chance of reforms getting through Congress any time soon.

All of that reinforces an observation about Janet Yellen’s recent financial stability speech: the US has departed a bit from the international consensus. Rather than activist macroprudential tools like adjusting loan-to-value limits on mortgage loans, the main focus in the US is on building an extremely well-capitalised banking system – one that can survive the fallout if an asset bubble bursts.

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