Tags: janet yellen | federal reserve | banks | risk

Fed Ready to Take More Action Aimed at Banking System Safety: Yellen

Wednesday, 06 May 2015 10:16 AM

Federal Reserve Chair Janet Yellen on Wednesday said the central bank is prepared to take further action to make the financial system safer, in a warning to the banking industry and non-bank lenders.

In prepared remarks at the "Finance and Society" conference held at the International Monetary Fund, Yellen outlined the contributions of the banking system to society and the economy.

But Yellen quickly turned her speech to the distorted system of incentives and weak controls throughout the financial industry that set the stage for the 2008 financial crisis.

"A combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis," Yellen said.

IMF Managing Director Christine Lagarde, joining Yellen in the first panel of the event, also cast a critical eye on the behavior of bankers and the need for change.

"What is needed is a culture that induces bankers to do the right thing even if nobody is watching," Lagarde said in her prepared remarks.

In a conference largely dominated by senior female officials in the financial world, Lagarde noted that more women leaders would help improve governance in the financial system.

Lagarde also said bank compensation incentives need to change so as to not reward excessive risk-taking.

Yellen said that regulators were too focused on individual firms before the crisis, and not focused enough on the safety of the entire financial system.

She noted all the steps the Fed and other agencies have put in place since the crisis to ensure larger capital buffers and to make them less risky. The Fed is also in the process of developing its so-called macroprudential tools, which aim to prevent asset bubbles.

Yellen did not comment on monetary policy in her remarks.

Policy makers, including the Fed, "remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted," she said.

© 2020 Thomson/Reuters. All rights reserved.


   
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Federal Reserve Chair Janet Yellen on Wednesday said the central bank is prepared to take further action to make the financial system safer, in a warning to the banking industry and non-bank lenders.
janet yellen, federal reserve, banks, risk
318
2015-16-06
Wednesday, 06 May 2015 10:16 AM
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