Financial Update (Second Quarter 2009)

Atlanta Fed Conference Takes Multifaceted Look at Crisis

FMC graphicThe Atlanta Fed's 2009 Financial Markets Conference—Financial Innovation and Crises—featured an opening keynote address by Fed Chairman Ben Bernanke and discussions of the financial crisis and the role played by complex new investment instruments.

Range of perspectives represented
The May 11–13 event at Jekyll Island, Ga., assembled policymakers, academics, and practitioners from institutions, including government organizations and universities. The varying perspectives of the participants offered multifaceted insights into how the markets might evolve and the ways policy might contribute, said Paula Tkac, an Atlanta Fed financial economist and associate policy adviser.

Efforts of the Fed and other regulatory agencies to generate liquidity and stabilize the financial system mean that monetary policy is closely tied to financial markets. Thus, Tkac pointed out, a serious exploration of issues surrounding innovation and crisis was particularly timely.

2009 FMC agenda and presentations
Audio icon Play related podcast (MP3 7:58)

Blend of theoretical, practical
Reflecting the varied backgrounds of the attendees, the conference offered a blend of the theoretical and the practical, exploring detailed market workings and policy questions. On a detailed level, papers and accompanying discussions examined the degree to which complexity determined the valuations of investments. Because participants believed that exotic financial instruments played such a prominent role in the financial crisis, they generally expect investors to demand more simplicity in the future, Tkac said.

Other discussions centered on larger policy issues. For example, given the deep interconnectedness of global capital markets, is there a place for a regulator with global reach? Also, should firms spanning borders require an international charter granted by a body such as the International Monetary Fund?

Looking ahead, innovation in financial markets is unlikely to halt, but it might change, Tkac said. Rather than increasingly complicated investments, she said new forms of regulatory policy and risk management could develop.

May 26, 2009