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Yellen: Fed considering tougher rules for big banks

Janet Yellen said that having big banks hold on to additional capital may prevent a freeze up of credit, "the primary engine of a financial crisis from which the United States and the global economy have yet to fully recover."
By Ananth Baliga   |   April 15, 2014 at 12:07 PM   |   Comments

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STONE MOUNTAIN , Ga., April 15 (UPI) -- Fed Chairwoman Janet Yellen indicated that the central bank was considering tougher rules for big banks, including stronger capital and liquidity standards.

Federal Reserve officials approved stricter rules for the eight largest banks in the country, but Yellen said that additional measures may be required to prevent a freezing up of the credit market, which happened during the financial crisis.

Yellen said the Fed was actively considering some measures, such as requiring firms to hold larger amounts of capital, stable funding or highly liquid assets based on use of short-term wholesale funding, and that such measures would apply to only the large, complex banking organizations.

Yellen also suggested minimum margin requirements for repurchase agreements and other securities financing transactions could be implemented across the market.

"In 2007 and 2008, short-term creditors ran from firms such as Northern Rock, Bear Stearns and Lehman Bros., and from money market mutual funds and asset-backed commercial paper programs," Yellen said in a video speech to the Federal Reserve Bank of Atlanta's financial markets conference.

"Together, these runs were the primary engine of a financial crisis from which the United States and the global economy have yet to fully recover," she said.

Yellen did concede there was a fine balance to be found when asking banks to hold on to more capital, because the more capital banks hold the less money they have to lend to businesses and investors.

Fed officials are "carefully thinking through questions about the trade-offs associated with tighter liquidity regulation," Yellen said.

[LATimes]
[Bloomberg]

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