The Risk That Regulations Pose To Monetary Policy

Just like combining different medications can have harmful side effects when the individual treatments are safe, a recent study from the Bank for International Settlements shows that the combination of banking regulations put into effect since the financial crisis make it harder for central banks to set monetary policy, says Federal Financial Analytics managing partner Karen Petrou. “While each rule is largely manageable in its own context, all of them together pose potential—and acute—risk, especially for the orderly conduct of monetary policy as critical challenges confront central banks in the wake of the crisis,” Shaw writes. “Leverage rules make holding…