Should the central banks take pre-emptive strikes against bubbles?

Howard Davies writes: It makes sense to vary banks’ capital requirements according to the financial cycle. When credit expansion is rapid, it may be appropriate to increase banks’ capital requirements as a hedge against the heightened risk of a subsequent contraction. This increase would be above what microprudential supervision – assessing the risks to individual institutions – might dictate. In this way, the new Basel rules allow for requiring banks to maintain a so-called countercyclical buffer of extra capital.

But if the idea of the countercyclical buffer is now generally accepted, what of the “nuclear option” to prick a bubble: Is it justifiable to increase interest rates in response to a credit boom, even though the inflation rate might still be below target? And should central banks be given a specific financial-stability objective, separate from an inflation target?  Pricking Bubbles