FRB Governor Brainard Discusses Agenda to Promote Financial Stability
Governor Lael Brainard of the Board of Governors of the Federal Reserve System ("FRB") delivered remarks at the Hutchins Center on Fiscal and Monetary Policy regarding the FRB's ongoing work to safeguard financial stability.
Recognizing that the FRB is primarily a supervisor of banks and bank holding companies with limited access to market data regarding the activities of non-bank financial intermediaries, Governor Brainard stressed the importance for the FRB to utilize the tools under its authority to preserve the structural resilience of the largest and most complex financial institutions.
Governor Brainard summarized the FRB's ongoing work to safeguard financial stability as being comprised of four pillars, which are in varying stages of advancement:
- Quarterly surveillance of a standard set of financial vulnerabilities, including asset valuations, risk appetite, leverage, maturity and risk transformation, and borrowing by households and businesses;
- A forward-looking macro-prudential "toolkit," including rules promulgated to raise capital and liquidity charges for large institutions engaged in risky activities, as well as broad and sector-specific, time-varying tools for use during periods of rapid credit expansion, such as counter-cyclical capital buffers and additional margin requirements for securities credit;
- Enhancing cooperation with other independent financial regulators through involvement with the Financial Stability Oversight Council, as well as through joint rulemakings and supervisory efforts; and
- The use of monetary policy, which Governor Brainard described as a "powerful tool" to be used as a "second line of defense."