Bernanke Discusses Fed's Increasing Role in Systemic Stability

Bernanke Discusses Fed's Increasing Role in Systemic Stability

Fed Chairman BernankeAt the Federal Reserve Bank of Atlanta's 2012 Financial Markets Conference at Stone Mountain, Ga., Fed Chairman Ben Bernanke recently spoke about the Fed's moves to reorient itself toward being an agency with a broader supervisory focus on systemic financial stability.

Financial stability gains emphasis
"In the decades prior to the financial crisis, financial stability policy tended to be overshadowed by monetary policy, which had come to be viewed as the principal function of central banks," Bernanke said in remarks opening the three-day conference. "In the aftermath of the crisis, however, financial stability policy has taken on greater prominence and is now generally considered to stand on an equal footing with monetary policy as a critical responsibility of central banks."

Within the realm of bank regulation, the Fed is also taking a broader approach. The shift began before the enactment of the Dodd-Frank Act, Bernanke pointed out. He noted that the Fed in 2009 established the Large Institution Supervision Coordinating Committee, a high-level group that draws on varied skills and experience from throughout the Federal Reserve System. That group is charged with overseeing the supervision of the most systemically important financial firms.

Macroprudential analysis informs regulatory perspective
The Fed is also regularly using macroprudential methods to analyze how economic events might affect the financial system as a whole as well as individual firms the Fed supervises. The European sovereign debt crisis is one such example. Since those concerns arose in the spring of 2010, the Fed has tracked U.S. banks' direct and indirect exposures to Europe and monitored the banks' management of their exposures, the Fed chairman said. The U.S. central bank has also been analyzing scenarios under which European sovereign debt developments might cause wider problems, such as through an increase in investor risk aversion that lowers asset values.

This work on the European crisis has deepened the Fed's understanding of both individual banks' risk profiles and the potential effect the European situation could have on credit flows and economic activity in the United States.

"Continuing to develop an effective set of macroprudential policy indicators and tools, while pursuing essential reforms to the financial system, is critical to preserving financial stability and supporting the U.S. economy," Bernanke said.

April 23, 2012