Fed Governor Daniel Tarullo said risks remain
despite improvements in the capital positions and management of
large banks. The U.S. central bank and other financial
regulators, he said, need to better understand any unintended
consequences that could leave the system vulnerable to crises
like that of 2008.
"Conceptual work" is needed on "how to specify the extent to
which banks should be required to self-insure against liquidity
risk by maintaining larger liquidity buffers and more closely
matching assets with liabilities, and how to define the
circumstances in which central banks should provide liquidity,"
he told a conference hosted by The Clearing House.
"We will need to monitor developments in order to assess whether
further action is needed to consolidate the progress we have
made in promoting financial stability," said Tarullo, the Fed's
point person on bank regulation.
Tarullo did not comment on monetary policy or the economy.
Instead he outlined progress in bulking up banks' capital and
liquidity standards, flagging the concern that banks could hoard
liquidity in times of stress.
He added, however, that regulators should take into account this
context if firms fall below regulatory thresholds in times of
stress. Such firms "should not be subject to automatic
sanctions, but instead given an opportunity to come back into
compliance in a way that does not expose either the firm or the
system to greater stress," Tarullo said.
(Reporting by Jonathan Spicer; Editing by Bernard Orr)
[© 2014 Thomson Reuters. All rights
Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.