Atlanta Fed President Guynn: Fed Needs to Change with Changing Times
COLORADO SPRINGS--The Federal Reserve needs to evolve to continue playing an effective public policy role in today's changing environment, while "preserving those things that have made the U.S. central bank a model for many emerging free-market economies," said Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta.
Speaking today at the annual convention of the Alabama Bankers Association, Guynn (pronounced "gwin") said that the Fed's approach to monetary policy must keep evolving. He suggested that a fundamental difference in price-setting behavior in the present business expansion has shown how the structure and the workings of the economy have changed, suggesting the need for exploring new economic models. He also said that he would welcome a public debate on the Fed's long-term objectives for monetary policy and the priority it should place on price stability.
In the area of bank supervision and regulation, Guynn said that the Fed should focus on determining what a sound financial services industry for the United States in the next century will look like. "One way to begin is at the narrowest level--rethinking the definition of the local banking market," he said, referring to the omission of nonbank competitors when evaluating mergers and acquisitions.
Pointing out that he has heard banks complaining about the increased specialization in bank exams, he also said, "We must find ways to conduct a more general, integrated approach to bank exams, an approach that looks at the whole picture and not just the pieces, an approach that acknowledges that the bank's management is responsible for its safe and sound operation."
In the payments area, Guynn called for the Fed to "get back to more of the leadership role we once had, but to do that in partnership with financial service companies." He said that with many new payment alternatives cropping up, such as smart cards, Internet banks and screen phones, it is important that this new payments system be safe for customers to use and also offer reasonable accessibility to anyone wanting to use these new services. The Fed should be an industry catalyst by bringing parties together to resolve differences in standards, by setting policy or regulation to govern payments processing, by educating and promoting and by being an efficient processor itself.
In addition to these significant changes, Guynn also pointed out some areas where the Fed does not need to change: "In the monetary policy area, for instance," he said, "one thing we do quite well is gather grass-roots, regional information and bring this economic intelligence to bear on Fed policy discussions." Another area that should remain the same is the Fed's integrity. "People have a right to look to the central bank to be even-handed, fair, and objective in everything we do," said Guynn.
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