Speaking for the Federal Reserve, Janet Yellen is considering stronger regulations for the nation’s eight largest banks. In a speech held on Tuesday, Yellen spoke about how these rules could help banks in the time of need should a troublesome financial situation occur.
Just a week ago, the Federal Reserve approved tighter conditions that would require the nation’s eight largest banks to add an additional $68 billion in capital. In her speech, Yellen referenced the 2008 financial crisis as reason to believe that more can be done to secure a credit continuance should the crisis happen again.
Yellen cited a study by the Basel Committee on Banking Supervision which stated that the larger banks to hold more capital and liquidity over time could create an economic growth. While Yellen spoke about the study, she was quick to let it be known that she did not give the one study too much weight. Yellen spoke on how that one conclusion could not solve all the current problems and the Fed is currently looking at other possibilities.
Some who oppose Janet Yellen, and her stronger regulations, are using the lower banks as reason as to why capital should not be raised for the larger banks. Opposers state that if larger banks are subject to new rules, they are likely to try to find loopholes and even try to gain back lost revenue from the lower banks. This type of situation can affect the lower non-banks and have a negative impact on the economy.
Stronger regulations and the need for more capital can also cause the larger banks to take bigger risks. These such risks have happened in the past. The 2008 financial crisis was brought on by large banks taking on riskier loans to lesser creditworthy borrowers.
Thankfully, Yellen did not state that the tighter regulations was actually going to happen. If anything, the speech Yellen gave was more of a warning shot to the larger banks in hopes that they could come up with a solution that could benefit them and the Fed. Yellen’s words only sparked interest in wanting to avoid another falling of the larger banks.
The interest in such measures does raise an eyebrow on those who remember the financial crisis of 2008. With a speech about tightening regulations against larger banks just a week after new rules were implemented, it makes one wonder if there are darker times on the horizon. During her speech, Yellen only spoke about the regulations and gave no commentary on the current state of the economy.
Though Janet Yellen stated that the stronger regulations would only be applied to the larger banks, others commented that it would mean less money to lend to the lower financial institutes. Yellen and the Fed is taking everything into consideration and is vocal about trying to get to a solution that will help the economy and prepare for the worst. The economy may not be out of the slump, yet it seems that there are measures being put in motion to help the economy.
By Raul Hernandez