After the Fall: Re-Evaluating Supervisory, Regulatory, and Monetary Policy

Understanding Inflation and the Implications for Monetary Policy coverOctober 21-23, 2009
Wequassett Inn
Chatham, MA

The recent turmoil in the international capital markets has reinforced a lesson first taught in the 1930s: the systemic risk present in financial markets may require that the government provide support during periods of extreme turbulence. In order to limit the frequency and extent of such interventions, the government needs to supervise financial institutions and markets. Hence, most observers now agree that it is not a question of whether government has a role in safeguarding the capital markets, but rather what that role should be. Given the global nature of financial markets in the twenty-first century, how do we now rethink and reform the rules of the game to prevent future crises?  Where is the systemic risk located, and how should the market be regulated?  Which financial activities and institutions should be overseen and which should not? What should be the nature of that supervision?

Of particular interest for this conference is considering the role the central bank should play in all of this. Do the central bank’s obligations as the ultimate supplier of liquidity in crises and as the ultimate guarantor of economic stability inherently confer certain supervisory and regulatory responsibilities? Have its existing supervisory responsibilities helped in the conduct of traditional monetary policy? Would its optimal supervisory and regulatory responsibilities further aid in carrying out monetary policy and help prevent future crises? This conference will gather participants from around the world to address these vital questions and issues.

Agenda, Papers, and Presentations


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Agenda, Papers, and Presentations
last updated: October 27, 2009 12:50pm EST

October 21 (day 1)  |  October 22 (day 2)  |  October 23 (day 3)  


Day 1: Wednesday, October 21

4:30 p.m. Conference Commencement and Welcome

Eric S. Rosengren
President and Chief Executive Officer
Federal Reserve Bank of Boston

5:00 p.m. How has supervisory policy performed?

Over the past 70 years, what have been the significant successes and failures of supervisory policy in the US?  Have supervisory failures affected macro stability?  If so, what was the source of the error? What makes supervision so difficult?  Have supervisory and regulatory policy kept up with innovations in the financial markets? Which regulators have been best at achieving their goals?    


James A. Wilcox
J. J. and M. B. Lowrey Professor of Business
Haas School of Business
University of California Berkeley

Paper: "How Has Bank Supervision Performed and How Might It Be Improved?" (with John O'Keefe)


Patrick de Fontnouvelle
Vice President
Supervision, Regulation and Credit Department
Federal Reserve Bank of Boston


Mark J. Flannery
Bank of America Eminent Scholar Chair of Finance
Warrington College of Business Administration
University of Florida

6:30 p.m. Reception & Dinner

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Day 2: Thursday, October 22

8:30 a.m. What are the costs and benefits of regulatory competition?

If one could design the supervisory and regulatory structure anew to fulfill the objectives identified above, are multiple agencies required? If so, what should be the guiding principles for the division of labor across agencies? Has the international experience provided any evidence that competition helps attain the goals of supervision and regulation?  As the lender of last resort for financial institutions and the economy, should the central bank play a key role in supervision and regulation and, if so, how? In particular, does the lender-of-last-resort function require that the Fed have supervisory and regulatory responsibilities over all types of financial institutions?


Jean-Charles Rochet
Professor of Mathematics and Economics
University of Toulouse School of Economics

Paper: "An Industrial Organization Approach to the Too Big to Fail Problem"


Edward J. Kane
James F. Cleary Professor in Finance
Boston College

Eugene A. Ludwig
Chief Executive Officer
Promontory Financial Group, LLC

10:00 a.m. Break
10:30 a.m. Should financial stability be included as an independent argument in the Central Bank’s objective function?

Traditionally, economists have restricted the arguments in the Central Bank’s objective function to inflation and the output gap; have recent events proven the need for one more goal?  Specifically, should the Central Bank care about financial stability above and beyond its effect on inflation and output?  What definition and measures should be used for “financial stability”?  Does financial stability affect the public’s utility independently of these two traditional goals?  How and why?  Have there been times when addressing financial instability conflicted with traditional monetary policy?  What was the Fed’s response in those circumstances?  Operationally, how would adding this third term alter the “Taylor Rule”?  How should the Fed trade off traditional macro policy and prudential supervision when they conflict (e.g. during financial crises): To forbear or not to forbear, and how? 


Eric S. Rosengren
President and Chief Executive Officer
Federal Reserve Bank of Boston

Geoffrey M. B. Tootell
Senior Vice President and Deputy Director of Research
Federal Reserve Bank of Boston

Joe Peek
Professor of Finance
Gatton Endowed Chair in International Banking and Financial Economics
University of Kentucky

Paper: "Is Financial Stability Central to Central Banking?"


Claudio E. V. Borio
Head of Research and Policy Analysis
Bank for International Settlements

Robert King
Professor of Economics
Boston University

12:00 p.m. Lunch
1:30 p.m. Panel Discussion on Monetary Policy Instruments Related to the Fed’s Supervisory Function:  Did the liquidity facilities provide successful alternative policy instruments?

In the recent crisis, the Fed used tools well beyond traditional discount window lending or open market operations. From the perspective of the relevant market participants, were these liquidity facilities viewed as effective in fulfilling the lender-of-last-resort function of the Fed? Should central banks be more creative in their use of these alternative policy instruments in the future? Would these programs have been more effective and less risky had the Fed been a supervisor of the institutions to which it lent, and if so what does that mean for supervision in the future?


Peter R. Fisher
Managing Director, Co-head of Fixed Income
BlackRock, Inc.

Fisher's Comments

James Hamilton
Professor of Economics
University of California, San Diego

Hamilton's Comments

Francesco Papadia
Chair, Foreign Exchange and Monetary Market Contact Group
European Central Bank

Moderator:  William C. Dudley
President and Chief Executive Officer
Federal Reserve Bank of New York
3:00 p.m. Afternoon Break
6:30 p.m. Reception & Dinner

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Day 3: Friday, October 23

8:30 a.m. Conference Address

The Honorable Ben S. Bernanke
Board of Governors of the Federal Reserve System

Full Address

9:00 a.m. Break
9:30 a.m. What should be the outline of the supervisory landscape?

If one were to start afresh, what guidelines and principles should shape the new regulatory and supervisory landscape? Most would agree that the broadest objectives of supervision and regulation are to promote both macroeconomic stability and the safety and soundness of individual institutions without hindering useful financial innovation. But how should supervision be organized to prevent the economy from becoming unstable and to minimize the effects on the financial system and the economy once a financial crisis does occur?  Would supervision and regulation organized by type of financial activitity rather than type of institution better prevent crises in the future?  Should non-depository institutions such as securities brokers and dealers, insurance companies, mutual funds, hedge funds be supervised and regulated according to the same set of principles? What should be the ex ante criteria that delineate the determinants (such as being “systemically important”) of which institutions should be helped in the event of a crisis and under what conditions? What forms should the assistance to those institutions take?


Alan S. Blinder
Gordon S. Rentschler Memorial Professor of Economics
Princeton University

Paper: "It’s Broke, Let’s Fix It: Rethinking Financial Regulation"


Anil Kashyap
Edward Eagle Brown Professor of Economics and Finance
Booth School of Business
University of Chicago

Sir John Gieve

11:00 a.m. Break
11:30 a.m. Panel Discussion on the International Perspective and Experience: What are the lessons we can learn?

The panel begins with a cross-country comparison of supervisory and regulatory structures. In particular, how is supervision and regulation organized in other major developed economies? Have certain structures proved more successful than others, and how does the likelihood of success depend on the country’s other institutional characteristics? This session should then discuss the implications of international capital mobility for supervision and regulation. Does increasing cross-border capital mobility pose any challenges to conventional frameworks for thinking about the role of supervision and regulation in fostering financial market stability?  How can we best promote cross-border coordination and collaboration among regulators? Does the most recent episode reveal the need for an internationally coordinated lender-of-last-resort?


The Honorable Donald L. Kohn
Vice Chairman
Board of Governors of the Federal Reserve System

Full Remarks

Jean-Pierre Landau
Second Deputy Governor
Banque de France

Kazuo Ueda
Graduate School of Economics
University of Tokyo

Paper: "The Structure of Japan’s Financial Regulation and Supervision, the Bank of Japan’s Role and Monetary Policy"

Moderator: Kenneth Rogoff
Professor of Economics
Harvard University
1:00 p.m. Lunch
2:00 p.m. Adjournment