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The macro-prudential authority is being adopted by monetary policy authorities as a means to limit systemic financial risks in the light of weaknesses revealed by the crisis. This article outlines the powers, scope and accountability that should characterise the macro-prudential authority.
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The financial crisis exposed serious flaws in the European framework for cross-border banking, including deposit insurance. Iceland’s experience shows that sizeable cross-border banking operations in small countries with their own currency come with very significant risks.
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The dramatic increase in international capital flows, despite a temporary contraction during the global crisis, has motivated policy discussions on the associated benefits and costs of capital mobility. While international capital movements can support long-term growth, they also pose short-term policy challenges, including those associated with undesirable consequences of exchange-rate appreciation, financial and asset-price cycles