Bank capital buffers better than monetary policy at cooling boom lending, global authority says

22 August 2018 11:31pm
Extra capital buffers to protect banks from boom-and-bust economic cycles would be more effective than monetary policy at tempering loan demand and advancing financial stability, Bank for International Settlements Chairman Jens Weidmann said.

But Weidmann, who doubles as head of Germany’s central bank, cautioned that authorities need to understand better how buffers such as mortgage and debt limits affect the broader economy and national monetary policy.

“We need to know how effective these tools are and whether the transmission channel is subject to lags,” he said in a speech* in Frankfurt this week (see here). “So far, there is limited empirical evidence to guide us.”