Introduction to (Mis)managing Macroprudential Expectations: the turn to tail risk

This chapter introduces the Bank of England’s turn to tail risk following the Global Financial Crisis and presents the main contours of the book’s arguments. It contends that efforts to capture tail risks go beyond the macroprudential policy objectives of identifying and monitoring systemic risks to financial stability. Rather, the calculation of tail risk contributes to managing the expectations that regulated institutions have around the Bank of England’s macroprudential approach, its willingness to support struggling institutions, and the use of novel macroprudential policy tools. This chapter subsequently sets out the book’s main arguments relating to the Bank of England’s treatment of climate change as a threat to financial stability. It contends that the identification of future climate tail risks simultaneously reveals opportunities for private profit and non-bank lending within the financial system. It outlines a series of provocations relating to this development and sets out the structure of the book.