Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesHot NewsMost Read NewsRecomm.Business LeadersCalendar 

Fed's Lacker : Relationship Between Banks, Regulators Still Flawed

share with twitter share with LinkedIn share with facebook
share via e-mail
0
03/30/2012 | 01:11am CEST
   By Michael R. Crittenden 
   Of  
 

The interplay between U.S. banks and government regulators remains "fundamentally flawed" despite efforts to toughen up oversight, the president of the Federal Reserve Bank of Richmond said Thursday, warning that simply relying on more rules will not forestall the next crisis.

Richmond Fed President Jeffrey Lacker, speaking before a group of lawyers in Charlotte, warned that the landmark Dodd-Frank Law overhauling financial sector oversight, as well as other changes made in the wake of the 2008 financial crisis, are not enough to prevent a future collapse.

"We should be under no illusions that the steps taken so far will provide durable and reliable protection against future instability," Lacker said in his remarks.

A voting member of the Federal Open Market Committee and a monetary hawk, Lacker avoided discussion of monetary policy or the economy generally in his remarks. Instead, he made the case that offering incentives to induce greater market discipline might be the best salve for what ails U.S. financial markets.

"Instead of placing all of our eggs in the basket of tighter regulation, we should place significantly greater reliance on the powerful decentralized forces of market discipline to constrain the risk-taking of large financial institutions," he said.

The Dodd-Frank law "leaves many important things undone," Lacker suggested, including not fully eliminating moral hazard and the specter of firms being considered "too big to fail." While he praised the law's requirement that large firms create so-called living wills to map out the steps needed to wind them down, Lacker said officials need to instill in market participants the belief that creditors of financial firms will not be backstopped by the government in times of financial stress.

Letting a large financial firm fail might be the answer, Lacker said.

"Commitment to market discipline might not be fully credible until the first instance in which authorities allow a large financial firm to fail without public assistance," Lacker said, suggesting an overhaul of the bankruptcy code with an eye to dealing with large, complex financial firms might be in order.

Additionally, he suggested lawmakers put greater restrictions on the Fed's ability to respond with special liquidity programs and extraordinary aid in times of crisis. Eliminating entirely the central bank's ability to lend to firms, which was restricted by the Dodd-Frank law, would help address the perception that the government is ready to step in during times of stress.

The key, Lacker added, is to rely on financial-market forces to police undue risks.

The more the centralized judgment of a small handful of officials, however well-informed or well-meaning, replaces the decentralized judgments of a multitude of financial market participants, the less resilient our system will become," he said. "We should strive for a financial system that is robust to large shocks and to the unavoidable errors of judgment made by individuals or single organizations."

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; [email protected]

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news
Date Title
06:00p DELANCO BANCORP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (form 10-K)
05:59p LENDL INTERVIEW - SUPERGA SPORT LENDL : the sneakers worn by the world tennis legend are back
05:59p NPA NATIONAL PETROLEUM AUTHORITY : Media release
05:59p FERRARI : GT Cup – Three Ferrari cars on track at Silverstone
05:59p NOVUS THERAPEUTICS : Announces Inducement Grants Under NASDAQ Listing Rule 5635(c)(4)
05:59p PRESS RELEASE - SUPERGA SPORT LENDL : the sneakers of a world tennis legend are back
05:59p EUROPEAN COMMISSION : Press release by Commission President Juncker at the joint press conference with the Heads of State and Government attending the preparatory meeting for the G-20
05:59p BASICNET : Biography_Ivan Lendl
05:59p TECHNICOLOR : Memory Pricing Volatility and its Impact on FY 2017 Performance
05:59p WEST PHARMACEUTICAL SERVICES : Packaging Supplier Regulatory Support for Medicinal Products, Part 2
Latest news
Advertisement
Hot News 
7.79%DS SMITH : to buy 80 percent of U.S. packaging firm Interstate Resources for $920 million
-7.81%MARKET SNAPSHOT : Dow, S&P 500 Look To Ride Bank Rally, But Tech Weakness May Weigh On Nasdaq
3.17%CITIGROUP : boosts buybacks, dividends beyond Wall St expectations
3.08%SKY : Britain says Fox bid for Sky gives Murdoch too much power over news
3.42%HENNES & MAURITZ : H&M Posts Forecast-Beating 2Q Rise in Profit
Most Read News
01:36a KAZUO OKADA : Universal president says founder Okada 'unfit' for board in private letter
06/28 WARREN BUFFETT : Buffett's Berkshire on verge of becoming BofA's top shareholder
06/28 DAVID HENRY : Citigroup boosts buybacks, dividends beyond Wall St. expectations
11:48a Oil prices edge up to two-week high on dip in U.S. output
11:44a RUPERT MURDOCH : Britain says Fox bid for Sky risks giving Murdoch too much power
Most recommended articles
06/23ECONOMY : The Federal Reserve: Dismal Failure or Shrewd Complicity?
11:57aDJCREDIT SUISSE : Mozambique Bondholders Push for Loan Repudiation
11:51aDJSTAPLES : Sycamore Plans to Split Staples into Three Separately Financed Entities, Sources Say -- Update
11:47aDJUNITED PARCEL SERVICE : Correction to UPS Golf Cart story
11:44a RUPERT MURDOCH : Britain says Fox bid for Sky risks giving Murdoch too much power