Regional President Speech

Observations on Macroprudential Supervision Eric S. Rosengren President & CEO Federal Reserve Bank of Boston 2010 Financial Markets Conference Federal Reserve Bank of Atlanta May 12, 2010 EMBARGOED UNTIL WEDNESDAY, MAY 12, 2010 10:15 A.M. EASTERN TIME OR UPON DELIVERY www.bos.frb.org Observations from the Financial Crisis (cid:131) Financial institutions (not just banks) did not hold enough capital for the size of this economic shock (cid:131) Large financial institutions were the first to experience problems despite their investment in risk management (cid:131) Financial problems had a broad impact on the length and severity of the recession and likely will impede the strength of the recovery 2 Purpose of Macroprudential Supervision (cid:131) Reduce the likelihood that problems at financial institutions (not just banks) negatively impact the real economy (cid:131) Reduce the negative economic impact should problems at financial institutions (not just banks) nonetheless occur 3 Reducing the Likelihood of Problems (cid:131) Holding more capital will reduce the probability of insolvency – particularly important if failure has broad ramifications Raise minimum capital standards (cid:137) Reserve for more than just accrued loss – (cid:137) Too influenced by accounting standards (cid:131) Retain capital as problems emerge Limit dividends and stock buybacks earlier (cid:137) Mandatory convertible debt (cid:137) 4 Reduce the Severity of Failure (cid:131) Create infrastructure for systemic institutions to fail (cid:131) Incent more stable behavior Living wills (cid:137) Complicated structure requires higher capital (cid:137) More capital for global banks where it could (cid:137) be difficult to conduct orderly resolution Higher capital when banks become too large (cid:137) to easily conduct orderly resolution Executive bonuses tied to maintaining (cid:137) adequate capital buffers 5

Eric Rosengren (2010, May 11). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20100512_eric_rosengren

@misc{wtfs_regional_speeche_20100512_eric_rosengren,
  author = {Eric Rosengren},
  title = {Regional President Speech},
  year = {2010},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20100512_eric_rosengren},
  note = {Retrieved via When the Fed Speaks corpus}
}