By Steven Beckner
DENVER (MNI) – Federal Reserve Vice Chairman Janet Yellen said
Monday that she is confident that the system for winding down failing,
systemically important financial institutions enacted in the Dodd-Frank
legislation will prove effective.
Yellen, answering questions following a luncheon speech to the
National Association for Business Economics, said the Fed will need to
monitor the effect of new financial regulations to guard against any
“unintended consequences.”
Yellen, who was given the NABE’s Adam Smith Award, was not asked
any monetary policy questions following her speech, which also had
little to say about current policy issues.
“I am very hopeful about the resolution regime put in place by
Dodd-Frank,” she said, adding that it gives regulators an “extremely
important ability” which they lacked in the crisis, to handle the
collapse of a systemically important financial firm.
“The new tools will permit an orderly wind-down to limit damage to
the financial system,” she said, adding that the largest firms “should
be held to higher prudential standards.”
Asked whether new regulations could affect financial firms’
behavior in a perverse way, Yellen said she “would expect” behavior to
change, but said “we will have to watch carefully to see that there are
not unintended consequences.”
In particular, she said the Fed will need to monitor the impact of
enhanced liquidity requirements. “We’ll have to study them very
carefully given our lack of experience…(to see) the impact on the
financial system as they’re phased in.”
She expressed the hope that federally imposed limits on bank
executive compensation will limit risk-taking.
** Market News International **
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