We need a national focus on increasing the sustainable growth rate of our economy.
— Jerome Powell
A risk-insensitive leverage ratio can be a useful backstop to risk-based capital requirements. But such a ratio can have perverse incentives if it is the binding capital requirement because it treats relatively safe activities, such as central clearing, as equivalent to the most risky activities.
We need a resilient, well-capitalized, well-regulated financial system that is strong enough to withstand even severe shocks and support economic growth by lending through the economic cycle.
We need a system that provides mortgage credit in good times and bad to a broad range of creditworthy borrowers.
Alignment of business strategy and risk appetite should minimize the firm's exposure to large and unexpected losses. In addition, the firm's risk management capabilities need to be commensurate with the risks it expects to take.
The sale of Treasury bonds, notes, and bills finances the U.S. government, and those securities are, in turn, a primary vehicle for savings for a wide range of U.S. households. Treasury securities are also an important source of collateral within the financial system.
The expectation of gradual policy normalization should reduce the likelihood of outsized movements in interest rates.
With customers' permission, fintech firms have increasingly turned to data aggregators to 'screen scrape' information from financial accounts. In such cases, data aggregators collect and store online banking logins and passwords provided by the bank's customers and use them to log directly into the customer's banking account.
We live in a world defined by the rapid pace of technological change.
An increase in the debt ceiling should be accompanied by fundamental policy reforms, substantial budget savings, and a strong enforcement mechanism to tie the hands of any future Congress.
In normal times, at the beginning of each month, the federal government makes a cash advance to the Social Security Trust Fund called the 'normalized tax transfer,' in an amount equal to the estimated payroll taxes for the coming month.
I am unable to think of any critical, complex human activity that could be safely reduced to a simple summary equation.
Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials.
More regulation is not the best answer to every problem.
Regulatory changes have forced banks to closely examine their liquidity planning and to internalize the costs of liquidity provision. The costs of committed liquidity facilities will be passed on to clearing members. These costs are perhaps highest in clearing Treasury securities, where liquidity needs can be especially large.
Higher capital requirements increase bank costs, and at least some of those costs will be passed along to bank customers and shareholders. But in the longer term, stronger prudential requirements for large banking firms will produce more sustainable credit availability and economic growth.
Congress created Fannie Mae in 1938 and Freddie Mac in 1970. For many years, these institutions prudently pursued their core mission of enhancing the availability of credit for housing.
The Federal Reserve is not charged with designing or evaluating proposals for housing finance reform. But we are responsible for regulating and supervising banking institutions to ensure their safety and soundness, and more broadly for the stability of the financial system.
We do take seriously our obligation to assess whether our reforms are achieving their desired effects without imposing unnecessary burden.
The TMPG is the place where market participants recognize and address their responsibilities to each other.
One factor that favors easier adjustment in EMEs is that U.S. monetary policy normalization has been and should continue to be gradual, as long as the U.S. economy evolves roughly as expected.
The banking industry has traditionally been characterized by physical branches, privileged access to financial data, and distinct expertise in analyzing such data.
There is no risk-free path for monetary policy.
If investors avoid the Treasury market, we could be unable to pay off maturing securities, which would mean an immediate default. Market participants generally agree that even a brief default would create potentially catastrophic risks to the financial system, like the meltdown of 2008.
The revenue stream for Social Security benefits comes from payroll taxes, which are credited to the Social Security Trust Fund - accounting for the program's finances separately from the rest of the budget.
The success of monetary policy should be judged by the economy's performance against our statutory mandates of price stability and maximum employment.
Legislative reforms in the 1990s and the public/private structure led managements to expand the GSEs' balance sheets to enormous size, underpinned by wafer-thin slivers of capital, driving high shareholder returns and very high compensation for management.
There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets, a balance that must be constantly weighed.
Liquidity problems can occur in central clearing, even if all counterparties have the financial resources to meet their obligations, if they are unable to convert those resources into cash quickly enough.
Loss-absorbing capacity among banks is substantially higher as a result of both regulatory requirements and stress testing exercises.
The overwhelming majority of new mortgages are issued with government backing in a highly concentrated securitization market. That leaves us with both potential taxpayer liability and systemic risk.
Risk management systems and controls may discourage or limit certain revenue-generating opportunities. Failure to ensure the independence of these functions from the revenue generators and risk takers has been shown to be dangerous, and this is something for which the board is accountable.
The Government Securities Act gave the Treasury Department some rulemaking authority over all government securities brokers and dealers. But the act also required these firms to register with the SEC.
As long as global financial conditions normalize in an orderly fashion, EMEs should have sufficient time to adjust.
There is clear empirical evidence that the response of EME financial markets to different shocks, including changes in U.S. interest rates, depends importantly on the state of economic fundamentals in the EMEs themselves.
As with so many sectors of the economy, technology is transforming the retail banking sector.
A digital currency issued by a central bank would be a global target for cyber attacks, cyber counterfeiting, and cyber theft.
The United States has never prioritized or failed to pay any obligation when due during a debt limit impasse. Despite the institutional risks and the lack of clear legal authority, we assume that Treasury will attempt to prioritize payments in a last-ditch effort to avoid default.
No single housing finance institution should be too big to fail.
The Federal Reserve is committed to fulfilling our statutory mandate of stable prices and maximum employment.
The GSEs became powerful advocates for their own bottom lines, providing substantial financial support for political candidates who supported the GSE agenda.
While monetary policy can contribute to growth by supporting a durable expansion in a context of price stability, it cannot reliably affect the long-run sustainable level of the economy's growth.
