Author Archives: Debra Palmore

Systemic Risk Council Comments on “JOBS Act 3.0” Bill

WASHINGTON, D.C.—On October 3, 2018, the Systemic Risk Council (SRC) sent a comment letter to Senators Michael Crapo and Sherrod Brown regarding the “JOBS Act 3.0” bill, S. 488, which has passed in the House of Representatives and may be taken up by the Senate Committee on Banking, Housing, and Urban Affairs.

The letter specifically focuses on the legislation’s proposals regarding (i) resolution planning, or “living will,” submissions and (ii) company-run stress testing. The proposal on living wills would prohibit the Federal Reserve and the Federal Deposit Insurance Corporation from requiring bank holding companies to submit resolution plans with a greater frequency than once every two years. The proposal on stress testing would exempt certain entities regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), respectively, from the Dodd-Frank Act’s company-run stress testing requirement. Although this section includes a provision permitting the SEC and the CFTC to issue regulations requiring firms to conduct their own periodic analyses of their financial condition under adverse economic conditions, it does not oblige the agencies to require such analyses.

As the SRC has pointed out previously,[1] whenever the next recession comes, the adverse effects on borrowers and the financial system are likely to be worse than we are used to because the monetary policy arsenal is depleted and the scope for timely fiscal stimulus is likely constrained.  Congress therefore should be careful not to make amendments that dilute or remove safeguards against systemic risk that are currently in place.  Financial markets are not so polite that distress will hit the United States on a pre-determined statutory timetable or in a pre-specified sector. Accordingly, the SRC’s strong recommendation is that these sections of the JOBS Act 3.0 legislation should be dropped or amended in order to ensure that the financial services regulators have the capacity to respond adequately and promptly to systemic threats.

Read the full letter here

[1] The Systemic Risk Council, Statement to the Finance Ministers, Governors, Chief Financial Regulators, and Legislative Committee Leaders of the G20 Countries (Feb. 27, 2017), available at http://4atmuz3ab8k0glu2m35oem99-wpengine.netdna-ssl.com/wp-content/uploads/2017/02/Systemic-Risk-Council-Policy-Statement-to-G20-Leaders.pdf.

Systemic Risk Council Opposes Federal Reserve and OCC Proposals to Reform Leverage Ratio and Volcker Rule

WASHINGTON, D.C.—On August 8, 2018, the Systemic Risk Council submitted a comment letter to the Federal Reserve Board of Governors and the Office of the Comptroller of the Currency on their proposals to relax the enhanced supplementary leverage ratio for big banks, and the so-called “Volcker Rule” constraints on using insured deposits to fund speculative trading and investments.

While in principle the Systemic Risk Council (SRC) supports the desire to simplify the current regulatory regime, the SRC believes the current proposals would make the US banking system materially less resilient and so expose the American economy and people to unnecessary risks. As such, the SRC is proposing an alternative way forward.

Read the full letter here

 

SRC Issues Statement on S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act

As the Senate debates the issues addressed by S. 2155, specifically the leverage ratio, the Systemic Risk Council (SRC) reiterates its previous statement that the leverage ratio should not be altered in ways that create or exacerbate systemic risk. Our most recent statement on this issue, excerpted from a letter to Senators Crapo and Brown regarding S. 2155, is set forth below. The full letter is appended to this statement.

Supplementary Leverage Ratio

As the Committee knows, the requirement that banks keep their leverage (broadly the ratio of total assets to equity capital) below a certain level was introduced because of the risks in relying on a risk-weighted minimum capital requirement. Those risks arise because of the mistakes that can be made by regulators and bankers in gauging the riskiness of particular assets and exposures. In particular, reliance of banks’ internal models gives bankers incentives to shade down their estimates of risk, effectively leaving them the choice of how much capital to carry to back their business. Given that the whole purpose of bank regulation is to overcome the problem of the social costs of banking distress and failure exceeding the private costs to bankers and their equity holders, allowing the banks to essentially self-regulate their capital would be perverse.

In consequence, the leverage ratio was introduced as a backstop. The more that individual banks stretch the limit of the risk-weighted ratio, the more the backstop will bite. That is the point.

The central feature of the leverage ratio is that it makes no distinction between assets and exposures. The Bill proposes that policy depart from that simple system. In particular, it proposes that reserves (broadly, deposits) held by banks with the Federal Reserve should be excluded from ‘total assets’. There are further suggestions that initial-margin moneys placed by banks with central counterparty clearing houses (CCPs) should also be excluded.

This would, we fear, be the thin end of the wedge. The history of bank regulation in the US is of progressive dilutions of core regulatory requirements over a number of years, leaving the banking system as a whole vulnerable to crisis. Preserving the principle that ‘total assets’ means total assets is important if the American people (and wider world) are to be adequately insulated against financial instability.

More specifically, the SRC recognises that there are special circumstances where reserves should be excluded from ‘total assets’ in order to remove a binding constraint on quantitative easing (QE)[1]. But SRC believes that such relaxations of regulatory requirements should be temporary and clearly necessary. Those legislators who were concerned about QE should be wary of making a permanent change to the leverage ratio that would make QE easier for the central bank. The final version of Basel 3 provides for such temporary relaxations, but does not make them a permanent feature of the system.

On the question of initial margin moneys (IM) placed with CCPs, SRC recognises that these exposures are low risk where two conditions hold: (a) that the IM is held bankruptcy remote from the clearing house, and (b) that the IM is invested on behalf of the banks in very low-risk assets such as Treasury Bills. But even then these exposures are not risk-free, because banks’ rights to the segregated assets could be challenged in the event of CCP distress or bankruptcy.

We would make one final comment on this issue. It is sometimes suggested that the leverage ratio is fundamentally ill-suited to custody banks, essentially on the grounds that the services they provide are conducted off-balance sheet. Of course, to the extent that such services are provided on a pure agency basis, there is no balance sheet activity and, thus, the leverage ratio would be irrelevant. In fact, a material source of custody banks’ profits come from providing services to their clients via their balance sheets: trading revenue and net interest margin. Those are unavoidably risky. Given the extraordinary concentration of the US custody business, itself a source of systemic vulnerability, it is immensely important that the custody banks be super resilient. Relaxations designed to help them could lead to perverse effects. If the leverage ratio bites, they could act as agents on-placing customer deposits with other banks (or in Treasury Bills or funds) rather than always taking them onto their own balance sheets.

[1] Technically, the central bank cannot use QE to create more reserves than is consistent with the leverage ratio. That is because where QE is used to buy securities from non-banks, the total assets of banks are increased, raising actual levels of leverage.

Read the full letter here: Systemic Risk Comment Letter to U.S. Senate

Systemic Risk Council Comments on the S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act

On February 21, 2018, the Systemic Risk Council submitted a comment letter to the Chairman Crapo and Ranking Member Brown of the U.S. Senate Banking, Housing and Urban Affairs regarding S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Bill”).

The Council limited its comments to only the proposals to raise the balance sheet size threshold for treating an intermediary as ‘systemic’ to $250bn and to exclude banks’ deposits with the Federal Reserve from the leverage ratio.

The Bill is predicated on an assumption that the Dodd-Frank reforms overshot. On some fronts, particularly as concerns truly small banks, the Council agrees. But relative to the period when the financial regulatory reform was designed and legislated, certain aspects of the global environment have deteriorated. Therefore, the Council recommends that (i) the threshold for applying enhanced prudential standards not be raised as far as $250bn; (ii) the stress testing requirements of significant intermediaries not be moved away from an annual cycle; and, if such change is made, that it be coupled with a grant of authority to banking regulators to conduct ad hoc stress tests in cases where any one of them believes that such tests are warranted by threats to the stability of the financial system or by an increase in uncertainty about the resilience of the banking system; (iii) the supplemental leverage ratio not be changed to exclude IM placed with CCPs; and (iv) the reserves held by banks with the Federal Reserve be excludable from ‘total assets’ only as a temporary measure where necessary given the mechanics of monetary policy.

Read the full letter here: SRC Comment Letter to U.S. Senate Committee

Systemic Risk Council Comments on the Treasury Departments October 2017 Reports

WASHINGTON, D.C.—On February 23, 2018, the Systemic Risk Council submitted a comment letter to the United States Department of Treasury (UST) regarding the UST reports issued last October, entitled A Financial System That Creates Economic Opportunities: Capital Markets (Oct. 2, 2017) and A Financial System That Creates Economic Opportunities: Asset Management and Insurance (Oct. 26, 2017).

The Council believes that the UST Reports make a number of welcome recommendations that are broadly relevant to the stability of the financial system, but is concerned that they “do not give enough attention to the importance of resilience in capital markets, asset management and insurance.”

Rebuilding and maintaining a resilient financial system has been the central objective of the reform program since the global collapse in 2008. In light of the lack of attention given to resilience issues in the Reports, however, “there is a risk that stability issues will be neglected in any reforms pursued via Congress or the regulatory agencies.” The Council’s letter therefore focuses on outlining “an approach to thinking about stability beyond the core banking system” that “includes identifying markets on whose resilience the economy relies, and giving all relevant US agencies a statutory mandate to preserve a stable financial system.” The Council’s approach builds upon what the Council previously has identified as the five core pillars of the post-crisis reforms to make the financial system resilient (see Notes for Editors).

The Council’s primary recommendations to strengthen the resilience of capital markets, asset management, and insurance include the following:

  • The UST and Congress should give the SEC and the CFTC an explicit statutory objective for financial stability framed in terms of the resilience of the system;
  • The FSOC should articulate criteria for identifying systemically significant markets;
  • Barriers to entry should be reduced in any significant markets characterized by highly concentrated suppliers, so far as that is consistent with maintaining resilient intermediaries;
  • The Dodd-Frank provisions enabling stress testing of investment vehicles should not be repealed;
  • The authorities should be vigilant in ensuring that every type of financial intermediary and service provider can be resolved in an orderly way without the provision of core services being badly damaged, and without fiscal solvency support;
  • Constraints on securitization markets should not be relaxed (or should be relaxed only if headline equity requirements for banking institutions are increased to compensate, thereby maintaining the same degree of overall system resilience);
  • Securitizations should not be treated as high-quality liquidity by bank regulators and supervisors; and
  • Regulators should continue to impose initial margin requirements on uncleared derivatives (and other) transactions between members of a group that are part of distinct resolution subgroups.

The full text of the letter is available here:  Systemic Risk Council Comments to Treasury October 2017 Report

 

 

Notes for Editors:

  1. The independent, non-partisan Systemic Risk Council (www.systemicriskcouncil.org) was formed to monitor and encourage regulatory reform of U.S. and global capital markets, with a focus on systemic risk. The Council is funded by the CFA Institute, a global association of more than 125,000 investment professionals who put investors’ interests first and set the standard for professional excellence in finance. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the CFA Institute. The Council works collaboratively to seek agreement on each of its recommendations.
  2. The five core pillars of system resilience that the Council underscored in its letter to G20 Finance Ministers and Governors in January 2017 are :
    • Mandating much higher common tangible equity in banking groups to reduce the probability of failure, with individual firms required to carry more equity capital, the greater the social and economic consequences of their failure;
    • Requiring banking-type intermediaries to reduce materially their exposure to liquidity risk;
    • Empowering regulators to adopt a system-wide view through which they can ensure the resilience of all intermediaries and market activities, whatever their formal type, that are materially relevant to the resilience of the system as a whole;
    • Simplifying the network of exposures among intermediaries by mandating that, wherever possible, derivatives transactions be centrally cleared by central counterparties that are required to be extraordinarily resilient; and
    • Establishing enhanced regimes for resolving financial intermediaries of any kind, size, or nationality so that, even in the midst of a crisis, essential services can be maintained to households and businesses without taxpayer solvency support—a system of bailing-in bondholders rather than of fiscal bailouts.

Systemic Risk Council Membership

Chair:                        Sir Paul Tucker, Fellow, Harvard Kennedy School and Former Deputy Governor of the Bank of England

Chair Emeritus:      Sheila Bair, President of Washington College and Former Chair of the FDIC

Senior Advisor:       Jean-Claude Trichet, Former President of the European Central Bank

Senior Advisor:       Paul Volcker, Former Chair of the Federal Reserve Board

Members:

Brooksley Born, Former Chair of the Commodity Futures Trading Commission

Baroness Sharon Bowles, Former Member of European Parliament and Former Chair of the Parliament’s Economic and Monetary Affairs Committee

Bill Bradley, Former U.S. Senator

William Donaldson, Former Chair of the Securities and Exchange Commission

Peter R. Fisher, Tuck School of Business at Dartmouth, Former Under Secretary of the Treasury for Domestic Finance

Jeremy Grantham, Co-Founder and Chief Investment Strategist, Grantham May Van Otterloo

Richard Herring, The Wharton School, University of Pennsylvania

Simon Johnson, Massachusetts Institute of Technology, Sloan School of Management

Jan Pieter Krahnen, Chair of Corporate Finance at Goethe-Universität in Frankfurt and Director of the Centre for Financial Studies

Sallie Krawcheck, Chair, Ellevate, Former Senior Executive, Citi and Bank of America Wealth Management

Lord John McFall, Former Chair, UK House of Commons Treasury Committee

Ira Millstein, Senior Partner, Weil Gotshal & Manges LLP

Paul O’Neill, Former Chief Executive Officer, Alcoa, Former U.S. Secretary of the Treasury

John Reed, Former Chairman and CEO, Citicorp and Citibank

Alice Rivlin, Brookings Institution, Former Vice-Chair of the Federal Reserve Board

Kurt Schacht, Managing Director, Standards and Advocacy Division, CFA Institute

Chester Spatt, Tepper School of Business, Carnegie Mellon University, Former Chief Economist, Securities and Exchange Commission

Lord Adair Turner, Former Chair of the UK Financial Services Authority and Former Chair of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation

Nout Wellink, Former President of the Netherlands Central Bank and Former Chair of the Basel Committee on Banking Supervision

* Affiliations are for identification purposes only. Council members participate as individuals and this letter reflects their own views and not those of the organizations with which they are affiliated.

Systemic Risk Council Comments on the Treasury Departments October 2017 Reports

On February 23, 2018, the Systemic Risk Council submitted a comment letter to the United States Department of Treasury (UST) regarding the UST reports issued last October, entitled A Financial System That Creates Economic Opportunities: Capital Markets (Oct. 2, 2017) and A Financial System That Creates Economic Opportunities: Asset Management and Insurance (Oct. 26, 2017).

The Council believes that the UST Reports make a number of welcome recommendations that are broadly relevant to the stability of the financial system, but is concerned that they “do not give enough attention to the importance of resilience in capital markets, asset management and insurance.”

Rebuilding and maintaining a resilient financial system has been the central objective of the reform program since the global collapse in 2008. In light of the lack of attention given to resilience issues in the Reports, however, “there is a risk that stability issues will be neglected in any reforms pursued via Congress or the regulatory agencies.” The Council’s letter therefore focuses on outlining “an approach to thinking about stability beyond the core banking system” that “includes identifying markets on whose resilience the economy relies, and giving all relevant US agencies a statutory mandate to preserve a stable financial system.”

Read the full letter here: Systemic Risk Council Letter to Treasury October 2017 Report

Systemic Risk Council Comments on the Treasury Departments June 2017 Report

WASHINGTON, D.C.—On September 19, 2017, the Systemic Risk Council submitted a comment letter to the United States Department of Treasury (UST) on its Report of June 2017 on possible reforms to banking-system regulation.

The Council believes that “the UST Report includes a number of worthwhile technical reforms and addresses important issues that are largely incidental to stability, but [is] concerned that some of the Report’s main recommendations would jeopardize the resilience of the financial system, the public finances and the welfare of citizens.”

The Council assessed the UST’s proposals against what it believes are five core pillars of the post-crisis reforms to make the financial system resilient (see Notes for Editors). Its main points are:

  • Financial Stability Oversight Council (FSOC) Powers. The Council supports the UST’s desire to make the rule-making process more efficient when multiple regulatory agencies are involved. To that end, the Council recommends that FSOC should be given the power to appoint a lead agency to draft a rule and respond to comments and, where necessary, a power to sign off on the rule itself.
  • Federal Deposit Insurance Corporation (FDIC). Contrary to the UST Report, the FDIC should maintain authority, alongside the Federal Reserve, for oversight and regulation of intermediaries’ Living Wills.
  • Title II of Dodd-Frank. Title II of Dodd-Frank, creating a special resolution regime for large and complex financial intermediaries, alongside bankruptcy, should be retained.
  • Off-Ramp for Large and Complex Banking Institutions. The Council believes that it is not possible to develop a single simple regulatory metric that would pass the test of time and withstand regulatory arbitrage. For that reason, it opposes exempting large and complex firms from other prudential regulations if they exceed a specified leverage ratio.
  • Supplementary Leverage Ratio (SLR). The Council worries that the UST Report proposal excluding certain types of assets from total assets in the SLR would prove to be the thin end of a very thick wedge.
  • Streamlining Stress Testing. The Council shares the UST desire to avoid making stress testing overly complicated, but it opposes the proposals to restrict stress testing to a biennial timetable and to restructure it as a form of rule-making.
  • Office of Financial Research (OFR). The Council is concerned that if OFR were to become a regular part of Treasury, its analysis of financial system vulnerabilities would be likely to wither as the priorities and interests of successive Treasury Secretaries shift away from stability.

The full text of the letter is available here: Systemic Risk Council Letter to Treasury Department.

Systemic Risk Council Letter to Treasury Department

On September 19, 2017, the Systemic Risk Council submitted a comment letter to the United States Department of Treasury (UST) on its Report of June 2017 on possible reforms to banking-system regulation.

The Council believes that “the UST Report includes a number of worthwhile technical reforms and addresses important issues that are largely incidental to stability, but [is] concerned that some of the Report’s main recommendations would jeopardize the resilience of the financial system, the public finances and the welfare of citizens.”

Read the full letter here: Systemic Risk Council Letter to Treasury Department

Sir Paul Tucker: International Cooperation Paramount in Ensuring Safe, Stable Banking Sector

We live in a joined-up world and the only way to make our banking and financial system safe is to collaborate, asserted Sir Paul Tucker, chairman of the Systemic Risk Council (SRC). Speaking at the 70th CFA Institute Annual Conference in Philadelphia on May 23, Tucker observed that policies needed to make the financial system resilient risk being undone. He urged asset managers and others to weigh in on the side of stability. If another crisis were to occur, he warned, the very survival of a market-based economy might be in jeopardy. To prevent this requires taking a medium-to-long term view. A vibrant system needs market discipline, and that falls largely to asset managers and their investing customers, Tucker said.

Ten years after the beginning of the global financial crisis in the summer of 2007, we about one-third of the way through the process of adjustment back to normality, Tucker suggested. As indicators of this, the Fed has only recently started to withdraw its extraordinary monetary stimulus, the ECB is still adding stimulus, the agreed core of the regulatory reform program is still being implemented and, in the US, parts of that program are being questioned by legislators and challenged by bankers.

Tucker emphasized that the core of the world’s banking system is more resilient now than before the crisis. “The banking system now has more tangible common equity than it did and would now be more resilient in the face of shocks.” Nevertheless, he maintained that “the global environment is probably less benign after 10 years than any of us that were sitting around the policy table back in 2009, 2010 would have thought.” The reformed regimes were not calibrated for conditions of weak trend growth and a badly depleted macroeconomic-policy arsenal, he explained. This was the wrong moment to dilute the resilience of the system. He warned, ominously, that in the event of a repeat of the global financial crisis within the next 10 -25 years, “the political backlash would be almost incalculable…The basic fabric of capitalism would be put under great strain.”

The role of the Systemic Risk Council, which was created in the wake of the crisis and basically comprises former policy makers from the US and Europe, was to help lean against self-destructive or short-sighted industry lobbying. This because its members believe in a market-based system for finance. “We care about [stability] very deeply, because of the social costs, the economic costs, the political costs if the financial system craters.”

Were another recession to occur in the Western world, he said, there is much less left in the macroeconomic arsenal to help smooth recovery than policymakers started with in those crucial months in late 2008/early 2009. He explained that back then all the major central banks could lower interest rates to zero from about 5%. “Whereas if you start off with interest rates at around zero, there’s not much room left to do that again.” And “such has been the scale of QE almost everywhere in the advanced world that it is not obvious that there’s a great deal left to buy without moving into  buying more or less everything in the way the Japanese have done with equities.” This matters, he insisted, because over the very long run the probability of a recession in any given year is around 15%.  “The nature of macroeconomic life is that sometimes economies, countries, regions, sometimes the whole world just get unlucky. And if we get unlucky there is just not much left in the tank to smooth thing over.” He worries that this is insufficiently discussed amongst market participants and beyond.

Tucker noted that much of the legislation that was passed to foster market changes in the wake of the crisis, such as Dodd-Frank in the US, have still not been fully implemented, and that now the debate in some corners has turned to rolling back those reforms.

Regarding current debates in Washington D.C. around repealing that part of Dodd-Frank that gave regulators in the U.S. the authority to resolve distressed financial institutions without taxpayer solvency support, Tucker said “it is very strange to take away from government some of the powers they may need to protect the American people” when that need not involve bailouts of fundamentally insolvent firms.

Banking Regulation

Tucker explained that earlier in the year as voices wanting to gamble with instability could again be heard on both sides of the Atlantic, the SRC decided to articulate what it sees as the core pillars of the program for making the financial system more resilient. The pillars are:

  • The core of the banking system carrying more tangible common equity — with intermediaries needing to be more resilient — the greater the social costs of their failure;
  • The system being much less exposed to liquidity risk;
  • Taking a system-wide view, with less fixation with legal form as opposed to the economic substance of different types of intermediation and services;
  • To simplify the network of counter-party credit exposures among financial intermediaries;
  • To introduce enhanced resolution policies for financial intermediaries so that all can be sorted out without devastating interruptions to the provision of vital services, but without government bailing out fundamentally bust firms, the equity investors and bondholders.

These policies are about making banks and financial intermediaries part of capitalism again, “as opposed to this semi-socialized system where they get the winnings, but when things go wrong the costs are spread over the tax payers.” Tucker continued, “This means that banks and dealers fail – and, actually, failure is an important part of a market process. We should celebrate orderly failure since it allows for the reallocation of resources that allows the economy to move on.”

Tucker explained that the strategy involves not relying on government regulators to always spot where the market or firms may be failing. Instead, the idea was to “harness market forces where you as the manager of portfolios of bonds know that you will be in line after equity is exhausted and therefore you have incentives to price bank bonds and dealer bonds on that basis. And to demand from them the kind of information you need to make those determinations.”

A functional Approach to Stability, Regulation, and Supervision

Tucker said policy makers had struggled to distinguish between those parts of the financial markets that could seriously jeopardize stability and those that are to be celebrated because of the efficient resource allocation that they bring. The SRC would not urge the authorities to suppress innovation, but instead to focus on structural vulnerabilities. “The idea that finance sectors can be put in boxes—banking, insurance, capital markets—is for the birds! If we continue with anything like the current world we must accept the need for a system-wide view and that financial regulators of all kinds have a responsibility for ensuring financial stability. And that means the statutory mandates of all financial regulators must include stability. It was a mistake not to do that in 2010.”

While nations had to vet international accords in line with their own local systems and processes, the only alternative to shared international minimum standards was financial autarky, he said. “No country on this earth, no matter how big, can ensure its financial system is safe for its own citizens without cooperating with its international peers, unless it reintroduced the kind of comprehensive capital controls that existed until the 1970s.”

Watch the video here

 

 

 

 

Sir Paul Tucker: Risk of Global Recession Small, But Still Real

Sir Paul Tucker, Former Deputy Governor of the Bank of England and Chair of the Systemic Risk Council, recently spoke with Börsen-Zeitung on the state of the global financial system and financial stability policy.

The risk of a global financial crisis over the next three to five years is “certainly not negligible,” according to Tucker. He notes that this is so not only because there are still major weaknesses in the global economy, such as the fault lines in the institutional foundations of the euro area or credit growth in China, but also because the global economy could simply fall victim to bad luck.

He emphasizes, however, that in comparison to 2007, there are generally much more and better regulatory mechanisms in place to counter the threat of a repeat of the Great Recession. To the extent that debt has increased, hey says, more of it is now in the public accounts and if the economy were hit by a shock, generally governments have more scope than the private sector to extend maturities and so smooth spending.

Tucker points to a potential disintegration or further diminution of the European Union as posing the greatest risk to global economic prosperity currently, and suggests that several euro-area economies need more flexible markets to offset their limited control of monetary policy to make adjustments.

Concerning the low interest rate environment of the last several years, and the role of Central banks therein, Tucker says “persistently expansionary monetary policy carries risks, without question.” He explains, however, that does not mean that, to avoid debt rising or exuberance in the financial system, central banks can simply forget their inflation target and allow inflation miss the target. “What central bankers can and, perhaps, should do more often is to press for regulation. In the current environment, banks should have more capital.”

Read the full article here: Börsen-Zeitung Interview with Sir Paul Tucker