The Yale Program on Financial Stability (YPFS) was founded in 2013 to focus on the broad topics of systemic risk and macroprudential regulation. In its early years, researchers at the YPFS authored dozens of case studies on these topics, and hosted an annual set of meetings to bring together policymakers from around the world. These activities covered both “peacetime” policies designed to prevent crises, and “wartime” policies designed to fight crises in progress.
More recently, it became clear that the biggest knowledge gaps existed for wartime policies. During the Global Financial Crisis, nations around the world had attempted hundreds of crisis interventions, only a fraction of which had been studied by researchers. Going back further in time, most research on past crises focused on macroeconomic issues, with much less attention paid to the mechanics of crisis-fighting tools. To fill this gap, the YPFS launched the New Bagehot Project in 2017, made possible by generous support from Jeff Bezos, Bloomberg Philanthropies, Bill Gates, the Peter G. Peterson Foundation, and an anonymous donor.
The New Bagehot Project was named in honor of Walter Bagehot, the author of Lombard Street (1873), still considered the seminal text on crisis fighting. Bagehot’s advice for central bankers in a crisis can be summarized as “lend freely at a penalty rate against good collateral”. This advice is still considered near-gospel by many central bankers, but it is insufficient to guide the complex policy actions necessary to stabilize a 21st century financial system. The New Bagehot Project aims to expand the crisis-fighting playbook through detailed case studies of specific interventions, synthesizing these case studies into best practices, and then presenting this synthesis across a variety of media.
We are producing two main levels of material for the New Bagehot Project – “Caserventions” and “Surveys”. Caserventions are standardized-template studies of specific policy interventions. The template is a key part of the overall Project design: for example, all Caserventions within a specific theme will have the same categories of “Key Design Decisions”, allowing for easy comparison across interventions and quick support for training and decision-making.
Caserventions are written from an objective “just-the-facts” point-of-view. The goal is to provide both an overview of the intervention (from the text) and sufficient details on the implementation (from linked documents) so that the Caservention could be useful at multiple levels of analysis. Surveys are framing essays that attempt to synthesize and draw lessons from a collection of Caserventions on a given topic. The subjects of these Surveys are either a broad category of interventions (e.g., Bad Banks, Broad-Based Guarantee Programs, or Market-Liquidity Programs) or a summary of multiple interventions for a specific crisis or part of a crisis (e.g., Iceland in the Global Financial Crisis, The Mexican Peso Crisis, The Rescue of AIG.)
Surveys will organize and analyze the key design decisions from a large group of Caserventions fitting that Survey type. Here, the standard template of the Caserventions plays an important role, as the Surveys will focus on explaining why these design decisions (and not others) are defined as “key”, and then on an evaluation of the costs and benefits of the different choices made. The style here will be more positive than prescriptive. The Surveys aim to summarize all the available evidence on each class of intervention.
We will ensure the analytical quality and historical accuracy of our Caserventions and Surveys by actively seeking the input of our community of intended users throughout the process of developing our materials. Whenever possible, we will reach out to the architects of interventions when writing our Caserventions and Surveys to ask questions, request comments on preliminary drafts, etc. Additionally, our online platform design will include an “invited commenting” feature that will enable designated users to provide feedback on the documents that we produce.
How can the materials of the New Bagehot Project be used? Two ways: peacetime training and wartime decision support. There are three components for peacetime training: (1) high-level in-person sessions at Yale (currently part of the Systemic-Risk Institute each summer) and perhaps with partners such as the IMF, BIS and major central banks; (2) graduates of these high-level programs bringing the training in-house to their institutions; and, (3) online availability of all Project materials with self-paced learning programs.
The wartime usefulness of New Bagehot is more ambitious and uncertain. We do not expect policymakers to have time for long slogs through materials in the heat of a crisis. Instead, we are working to design the online interface to be as user-friendly as possible for a time-crunched decision-maker. To this end, we have engaged design professionals to work with us on the user interface, and we have begun to convene focus groups from central banks to provide feedback both on content and the user experience.