Financial Stability Reports: How Useful During a Financial Crisis?

Many of the origins of the recent financial crisis were in the United States, beginning with subprime mortgages and mortgage securities. As the crisis spread globally, few market participants or regulatory authorities saw it coming, and all underestimated its severity. In the United States, the crisis has sparked many proposals to address its perceived causes and prevent a recurrence. Proposals include establishing a systemic regulator, enhancing financial institution supervision and resolution authorities, creating a consumer financial protection agency, and many others. One approach already used in many other countries is publishing financial stability reports (FSRs). These reports review the condition of the financial system, identify and assess risks to the system, and suggest market or policy changes to address significant risk concerns. They are usually prepared by the country’s central bank and appear on a regular basis.