By Ian McKendry
WASHINGTON (MNI) – International financial regulation will not be
able to keep up with financial product innovation, but liquidity and
capital standards play a critical role in their regulation, Federal
Reserve Board Member Daniel Tarullo said Friday.
“It is critical that we have things like capital and liquidity
standards, and some sort of structure for market clearing mechanisms
that can accommodate and provide some bumper to any number of products,”
Tarullo said while speaking on a panel on international financial
regulation.
“We need to be aware of the fact that we are not going to be able
to stay ahead of individual experimentation and development,” Tarullo
added.
Tarullo also said a lack of information was one of the causes that
froze up markets during the financial crisis and more information about
counterparties would be beneficial. “We still have some work to
do on that issue of information,” he said.
Tarullo said meetings held by the newly created Financial Stability
Oversight Council for which he is an adviser and not a voting member —
will put particular emphasis on “spotting things that have not yet
become part of conventional wisdom.”
Tarullo also spoke on the importance of harmonizing FASB and IASB
regulations and the development of true international accounting
standards.
Tarullo said new financial regulation will represent for the first
time quantitative liquidity requirements which will provide some
“insulation from the kind of pressure that come from the run.”
In order to determine what those liquidity requirements are it is
important to use the same measuring stick and “do not have unintended
consequences of divergence,” Tarullo said.
There is some concern that the development of a single standard has
been slow to develop. “Things are not exactly moving together in quick
convergence,” but added, “I think the importance of it is understood
now.”
** Market News International Washington Bureau: 202-371-2121 **
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