Regulators use macro-prudential tools to limit systemic threats to the financial system. Such risks usually arise from

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Regulators use macro-prudential tools to limit systemic threats to the financial system.

Such risks usually arise from externalities—costly spillovers from the behavior of intermediaries. These externalities have two sources: (1) common exposure of intermediaries to frail institutions or to underlying risks and (2) pro-
cyclicality of the links between financial and economic activity, which amplifies boom and bust cycles.

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Money Banking And Financial Markets

ISBN: 9781260226782

6th Edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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