By Brai Odion-Esene

WASHINGTON (MNI) – Federal Reserve Gov. Sarah Bloom-Raskin
Wednesday said consumer protection, given its strong ties to consumer
spending and consumer finance, will always have a significant role in
the Federal Reserve’s assessment of how the U.S. economy is progressing.

Answering questions following remarks to a New America Foundation
Forum in Washington, Raskin also noted that many traditional banking
services no longer meet the needs of many Americans, creating a space
that can be filled by non-conventional financial service firms.

Commenting on the Federal Reserve’s role, given the ongoing
transfer of certain functions to the Consumer Financial Protection
Bureau, Raskin said consumer protection is essential to a growing and
thriving economy.

From that perspective, consumer protection is something that the
Fed will always think about in all areas of its responsibilities; be it
safety and soundness regulation, compliance examinations, or it’s
considerations about how the U.S. economy is performing, she said.

“One thing that is quite apparent now is that consumption, right
now, is quite low and it is not … the driver that it used to be,”
Raskin said.

So the linkages between consumer spending, consumer finance, and
consumer protection to the economy “are of critical importance and will
always have to be at the forefront of what the Federal Reserve always
thinks about,” she said.

Asked to address concerns that an active marketplace regulator —
such as the CFPB — could stifle innovation, Raskin said it is important
to foster innovation while at the same time making sure that financial
products have a “sufficiently robust” regulatory structure around them.

The goal is to have a regulatory structure that does not stifle
financial innovation but encourages those features that will benefit
consumers, Raskin said.

“I don’t think that there’s something inherently contradictory
about regulation and innovation,” she said. “I think that regulation
done correctly is actually pro-innovation, and I see that they can move
on simultaneous paths.”

Raskin noted that a lot of traditional banking services are not
working for a lot of Americans, meaning there are big gaps in which
products can be developed, products that — in many cases — will evolve
to serve the needs of those that demand them.

“And as they evolve, we obviously want to give them space to evolve
but we want to keep an eye on them,” she added.

Raskin emphasized, however, that despite her comments she is not
advocating a two-track financial system. From an economic point of view,
a two-track financial system is not sustainable, she argued.

“I would hope that we do not develop a two-track financial system
but that, in fact, we develop a robust financial system that is
responsive to various communities and neighborhoods in the country,” she
said.

Having one track that serves the affluent — with high-minimum
balance checking accounts and other barriers to entry — would lead to
the emergence of new and more responsive market participants, Raskin
said. “And they will emerge in safe ways and unsafe ways.”

The idea is not to impede the emergence of such firms, she said,
but to harness their positive aspects and “prohibit, limit or regulate”
the more risky side.

As for the U.S. savings rate and the negative impact from the large
number of unemployed, Raskin said a lot can be done to spur higher
saving by both the government and private sectors.

However, she argued, if the U.S. were to reach a point where the
government forces people to save, “I would say that would be a pretty
pathetic kind of response.”

** Market News International Washington Bureau: 202-371-2121 **

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