Financial stability.

Summary The back cover states: "The severity of the financial crisis that began in the summer of 2007 continues to surprise not only the general public, but also market practitioners, many economists and journalists. Faced with this challenge, as Jean Tirole writes in his preface, "Financial Stability takes the side of long-term thinking. It goes back to basics: what do theory and empirical observations tell us about the causes and consequences of financial instability? What lessons can we learn from modern economics to avoid repeating the mistakes of the past in an increasingly complex financial world?" This book opens with a presentation of the concepts that are essential to the analysis of financial stability, such as liquidity, leverage, bubbles or systemic risk. Then, it reports on the causes and propagation mechanisms of the first financial crisis of the 21st century. He analyzes public policy instruments by distinguishing between actions on incentives, such as the use of market discipline or taxation, and constraints on activities, such as limiting the activities of financial institutions or markets. Liquidity and solvency standards are dealt with specifically, because of their importance and their mixed nature (action on incentives and constraints on compliance). Macro-prudential policies and the interaction of economic policies with financial stability are then presented. Finally, the architecture and governance of the institutions in charge of implementing financial stability policies are described and assessed. Jean Tirole notes that "Financial Stability makes an enormous literature accessible". This book reviews technical subjects that were once almost absent from the academic world, but which are essential to a good understanding.