Yellen argues for no more than ‘modest’ reform of reg framework

Arguing that the financial system is more resilient because of reforms adopted in the wake of the “Great Recession” of the last decade, Federal Reserve Board Chairman Janet L. Yellen advised that any adjustments made now to the federal financial regulatory framework be modest and “preserve the increase in resilience” associated with those reforms.

“Our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks, as has been illustrated during periods of market turbulence in recent years,” Yellen said today in remarks to symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo. “Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad.”

The central bank’s board chairman noted that through coordinated regulatory action and legislation, the United States in the wake of the recession was able to move “very rapidly” to reform the financial system, “and the speed with which our banking system returned to health provides evidence of the effectiveness of that strategy,” she said.

She said that preeminent among domestic and global actions were steps to increase the loss-absorbing capacity of banks, regulations to limit both maturity transformation in short-term funding markets and liquidity mismatches within banks, and new authorities to facilitate the resolution of large financial institutions and to subject systemically important firms to more stringent prudential regulation.

Yellen pointed out that many reforms have only recently been put into place, thus markets are still adjusting to them, and research of the impact the reforms is limited. “The Federal Reserve is committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system,” she said.

Speech text: “Financial Stability a Decade after the Onset of the Crisis”