Collective action problems in macroprudential policy and the need for international coordination.

There is increasing recognition in the academic and policymaking communities that dedicated macroprudential policies are needed to reduce the frequency and severity of financial crises. The main theme brought out by this article is that in a globally interconnected world, a range of collective action problems lead to “too little” macroprudential policy action, from both a national and a global perspective. This reinforces inherent biases in favor of inaction or insufficiently forceful and timely macroprudential action at the national level. A combination of guidance by standard setters, international surveillance, and regional coordination mechanisms is needed to reduce collective action problems and enhance the effectiveness of macroprudential policy in the pursuit of global financial stability.