Loose Policies Around Close Elections Highlight the Political Limits of Macroprudential Regulation

What can policymakers do to prevent future financial crises? An emerging consensus holds that so-called macroprudential regulation is key: policies that aim to mitigate risks to the financial system as a whole. In a recent paper, Karsten Müller of Princeton shows that such policies were systematically loosened in the run-up to two-hundred seventeen elections across 58 countries. This raises the question of whether regulators can, in practice, withstand political pressures.

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