Macro-prudential supervision: the case against

scales

Friedrich Hayek, the economist and political philosopher, called it “the fatal conceit” – the idea that it is possible to direct participants in complex systems, like markets, as though they were a multitude of puppets in the hands of a master puppeteer. Supervisors and central bankers are bent on proving him wrong.

The wires they will use to manipulate the system are prudential measures, such as bank capital, liquidity and leverage standards, plus collateral requirements and loan-to-value limit

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