Friday, October 9, 2015

Recent Speech by NY Fed President William C. Dudley

Below I have pasted some key quotes from a recent speech made by NY Fed President William C. Dudley. The speech is talking about whether the US can improve financial stability by adding on "macroprudential tools." While the speech looks at the pros and cons of the issue, the concluding paragraphs are what I selected to quote here. They give you a feel for how those inside the system believe things are going in terms of financial stability.

"We have a very complex financial system in the United States. I think we need to do much more work in developing a coherent macroprudential framework before we start contemplating putting a number of countercyclical measures in place. Such a framework needs to take into consideration how it interacts with other policies, such as microprudential policies - to ensure the safety and soundness of individual institutions and monetary policy - designed to help ensure a stable macroeconomy. When are these policies substitutes? When are they complements? How will they interact? How will the governance work in coordinating across these three realms?
In the meantime, while we work to sort all this out, we should take considerable solace from the fact that we have made the financial system more resilient to shocks. We may not be able to anticipate the next area of excess. But with higher capital and liquidity requirements and the use of stress tests to assess emerging vulnerabilities, I think we are much better placed than we have been in the past."
My added comments: 

This is the view I see inside the system for the most part. A concern that there are risks to financial stability, but a feeling that the measures taken since the 2008 crisis "have made the financial system more resilient to shocks." Note Mr. Dudley adds that "I think we are much better placed than we have been in the past."

This pretty much sums up what we follow here on the blog. The contrast between what we see inside the system (a view that things are relatively stable now) versus the view of those like Jim Rickards, Nomi Prins, and others who think that we are headed for another major crisis that those inside the system will not see coming. They think this crisis will be worse than 2008 and force a "reset" of the global financial system (new global rules of the game).

Of course we have a full page here on the blog of financial systemic risk warnings that have been issued by both the IMF and the BIS over the past year. A reader may ask, if the feeling is that things are stable, why all the warnings? 

I believe the warnings are issued to cover the IMF and the BIS in case another crisis does emerge (we warned you it was possible). At the same time I think the general feeling inside those organizations is that another crisis is not looming on the near horizon. However, they know they have missed seeing them coming in the past so they issue the warnings just in case. We on the outside of the system have to be prepared for any possible scenario and that we are not likely to get a heads up if another major crisis does emerge suddenly. It is likely we will be directed to the warnings that have been issued if that does happen.

All we can do here is follow events and see what actually does happen.

No comments:

Post a Comment