By Michael S. Derby
The Federal Reserve is still working out how much information to disclose in future banking sector stress tests, central bank c said Thursday.
“We are not ready to issue proposed rules on that,” Bernanke said, but the Dodd-Frank financial oversight reforms specify “the Fed will release broad information from those stress tests.”
Bernanke said he considers Fed-led stress testing, which explored the vulnerabilities of the nation’s largest banks and required remedies to fix trouble spots, to be a major turning point in returning the financial sector to health.
The law is “not very specific” and that “gives us some leeway” to think about the issue, Bernanke said in response to audience questions at a conference held by the Federal Reserve Bank of Chicago.
“To be honest, we haven’t really come to an internal view what the right point is,” the official said. He doesn’t expect future disclosures to be as detailed as what happened in 2009, but he added, “we are going to have to try to find a way that balances the legitimate business interests and privacy concerns, on the one hand, of the institutions, versus the very important need to provide information that will help investors and markets assess the strength of the banking system.”
In his formal remarks, Bernanke said the Fed is already moving forward with its new mandate to promote broad financial stability in the wake of financial oversight reform legislation that instructed it to do so.
The Fed “has restructured its internal operations to facilitate” a regulatory approach that looks beyond the health of individual financial institutions, to one that looks at the interlinkages between firms and the overall state of the banking system, the official said.
Citing the Financial Stability Oversight Council comprised of leaders of the U.S.’ major financial regulatory agencies and the Treasury Department, Bernanke said the work of this panel is “already well under way” and it “will also be reflected in the council’s required annual report to the Congress on financial stability, which is expected to be released in the summer.”
Bernanke’s comments Thursday came in the wake of last week’s meeting of the interest rate setting Federal Open Market Committee, which resulted in short-term interest rates being left at their de facto zero percent level. The central bank also continued to press forward with its controversial $600 billion Treasury bond buying program, although in an unusual press conference following the FOMC meeting, Bernanke indicated the program will end in the early summer, as planned.
In his prepared remarks, Bernanke didn’t address the economy or monetary policy. But the central bank chief did explain how the new focus on promoting financial stability is changing how the Fed and other regulators work.
Bernanke said the government debt troubles in Europe that started last year are an example of the new landscape. “We now also routinely apply macroprudential methods to the analysis of significant economic developments, whether domestic or foreign,” the official said.
“As yields on European sovereign debt and bank debt rose in the spring of 2010, Federal Reserve supervisors began to evaluate U.S. banking firms’ exposures to European banking firms and sovereigns,” Bernanke said. “This work suggested that providing a backstop for the dollar-funding needs of European financial institutions could mitigate the potential for spillovers to the United States from European sovereign debt concerns,” he said. As a result, the Fed re-launched its currency swap lines with the world’s leading central banks, although it’s worth noting those lines have been little used since they came back into existence.
Bernanke also cited money market funds as another problem area benefitting from the new push to promote overall financial stability, and pointed to consultations the Securities and Exchange made with other regulators to improve the safety of this key market sector. “The SEC, which has already issued rules to increase the stability of money market mutual funds, is appropriately taking the lead in investigating whether further steps are necessary,” the policymaker said.
But the central bank chairman noted there are limitations to what regulators can accomplish in their new collective state. “Although the council’s own powers are circumscribed to some degree, the potential benefits of its ability to foster cooperative work among U.S. regulatory agencies should not be underestimated,” Bernanke said.
The Fed chief also cautioned any rulemaking by regulators should be well considered. “No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit,” he said. “Increased coordination and cooperation among regulators, under the auspices of the council where appropriate, should serve not only to improve our management of systemic risk, but also reduce the extent of duplicative, inconsistent, or ineffective rulemakings,” Bernanke said.
Bernanke also told the audience he expects the new regulatory framework to make officials more adapative and said he believes the financial system is already more resilient in the face of a new shock.
Source: http://blogs.wsj.com
The Federal Reserve is still working out how much information to disclose in future banking sector stress tests, central bank c said Thursday.
“We are not ready to issue proposed rules on that,” Bernanke said, but the Dodd-Frank financial oversight reforms specify “the Fed will release broad information from those stress tests.”
Bernanke said he considers Fed-led stress testing, which explored the vulnerabilities of the nation’s largest banks and required remedies to fix trouble spots, to be a major turning point in returning the financial sector to health.
The law is “not very specific” and that “gives us some leeway” to think about the issue, Bernanke said in response to audience questions at a conference held by the Federal Reserve Bank of Chicago.
“To be honest, we haven’t really come to an internal view what the right point is,” the official said. He doesn’t expect future disclosures to be as detailed as what happened in 2009, but he added, “we are going to have to try to find a way that balances the legitimate business interests and privacy concerns, on the one hand, of the institutions, versus the very important need to provide information that will help investors and markets assess the strength of the banking system.”
In his formal remarks, Bernanke said the Fed is already moving forward with its new mandate to promote broad financial stability in the wake of financial oversight reform legislation that instructed it to do so.
The Fed “has restructured its internal operations to facilitate” a regulatory approach that looks beyond the health of individual financial institutions, to one that looks at the interlinkages between firms and the overall state of the banking system, the official said.
Citing the Financial Stability Oversight Council comprised of leaders of the U.S.’ major financial regulatory agencies and the Treasury Department, Bernanke said the work of this panel is “already well under way” and it “will also be reflected in the council’s required annual report to the Congress on financial stability, which is expected to be released in the summer.”
Bernanke’s comments Thursday came in the wake of last week’s meeting of the interest rate setting Federal Open Market Committee, which resulted in short-term interest rates being left at their de facto zero percent level. The central bank also continued to press forward with its controversial $600 billion Treasury bond buying program, although in an unusual press conference following the FOMC meeting, Bernanke indicated the program will end in the early summer, as planned.
In his prepared remarks, Bernanke didn’t address the economy or monetary policy. But the central bank chief did explain how the new focus on promoting financial stability is changing how the Fed and other regulators work.
Bernanke said the government debt troubles in Europe that started last year are an example of the new landscape. “We now also routinely apply macroprudential methods to the analysis of significant economic developments, whether domestic or foreign,” the official said.
“As yields on European sovereign debt and bank debt rose in the spring of 2010, Federal Reserve supervisors began to evaluate U.S. banking firms’ exposures to European banking firms and sovereigns,” Bernanke said. “This work suggested that providing a backstop for the dollar-funding needs of European financial institutions could mitigate the potential for spillovers to the United States from European sovereign debt concerns,” he said. As a result, the Fed re-launched its currency swap lines with the world’s leading central banks, although it’s worth noting those lines have been little used since they came back into existence.
Bernanke also cited money market funds as another problem area benefitting from the new push to promote overall financial stability, and pointed to consultations the Securities and Exchange made with other regulators to improve the safety of this key market sector. “The SEC, which has already issued rules to increase the stability of money market mutual funds, is appropriately taking the lead in investigating whether further steps are necessary,” the policymaker said.
But the central bank chairman noted there are limitations to what regulators can accomplish in their new collective state. “Although the council’s own powers are circumscribed to some degree, the potential benefits of its ability to foster cooperative work among U.S. regulatory agencies should not be underestimated,” Bernanke said.
The Fed chief also cautioned any rulemaking by regulators should be well considered. “No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit,” he said. “Increased coordination and cooperation among regulators, under the auspices of the council where appropriate, should serve not only to improve our management of systemic risk, but also reduce the extent of duplicative, inconsistent, or ineffective rulemakings,” Bernanke said.
Bernanke also told the audience he expects the new regulatory framework to make officials more adapative and said he believes the financial system is already more resilient in the face of a new shock.
Source: http://blogs.wsj.com
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