Atlanta Fed Examines the Future of Financial Regulation

columnIn the wake of the financial crisis and Great Recession, the United States and other large industrial nations enacted sweeping regulatory changes. In mid-April, the Federal Reserve Bank of Atlanta convened leading thinkers in finance and economics in Stone Mountain, Georgia, to explore the implications of new regulations and whether more regulated financial markets produce greater financial and macroeconomic stability.

As one might expect regarding such complex issues, straightforward solutions are elusive and opinions vary. The Atlanta Fed's 2014 Financial Markets Conference—titled "Tuning Financial Regulation for Stability and Efficiency"—examined numerous proposals and actions intended to promote recovery and reduce the risk of future crises.

Yellen discusses Fed's work to augment Basel banking rules
Federal Reserve Chair Janet Yellen opened the conference. Via video, Yellen said the Fed is studying ways to augment liquidity standards for global banking firms that were formulated by a body of international banking regulators in Basel, Switzerland. "These standards tend to focus on the liquidity positions of firms taken in isolation rather than on the financial system as a whole," Yellen said.

The Basel III standards also do not apply to "shadow banks," the nontraditional financial institutions that are largely unregulated, Yellen pointed out. "Federal Reserve staff are actively considering additional measures that could address these and other residual risks in the short-term wholesale funding markets," she said.

Yellen added that the Fed is carefully considering the trade-offs associated with tighter liquidity regulation.

A host of current topics receive consideration
After the Fed chair set the stage, four panels discussed timely policy questions:

  • Are less active markets necessarily safer?
  • Will more private liquidity mean a safer, more efficient financial system?
  • Has quantitative easing worked?
  • Will more and better information produce a more stable financial system?

May 2, 2014