Macroprudential regulation - Are we making any headway?

Macroprudential regulation is all of the buzz word these days, but stepping back I have a sense that this is moving more towards the critical issues with allocations in a planned economy. Do we have enough information to allocate risk capital in the right direction or is it the role of markets to price risk and help with the allocation of risk. Granted the markets did a poor job of allocating risk capital. The sub-prime mess should not have occurred, but some of these allocation problems occurred because the government allowed the price of risk to be too cheap. The risk weighting for triple-A securities and governments was zero. Of course, the market will find a way to create these securities.

Can the IMF and the new FSB or Financial Stability Board provide the right guidance? There seems to be some clear priorities with governments and regulators on where there focus will be:

• Maturity mismatches - the bread and butter of banks. Lend long and borrow short. If you change how this is done, the channels of monetary policy will change.
• The links between big banks and other financial institutions. This will effect all financial innovation because many of the advances in finance have come outside the traditional banking model.
• The shadow banking system. Financial intermediation grew because banks were not able to service clients needs. This area should be under closer observation but not dominated by the vested interest of established banks.

The problem is always three-fold. What information is collected? How is it interpreted? How is it used to implement policy?

As stated by Claudio Borio of the BIS, "The main reason why crises occur is not lack of statistics but the failure to interpret them correctly and to take remedial action".