April 15, 2014

Yellen downloads belt tightening onto banks

Let me get this straight, Quantitative Easing (printing more money) is okay, but big banks should be required to hold more money to weather financial shocks.  Setting aside the notion that stricter reserve requirements for banks run counter to quantitative easing efforts,  is Yellen actually expecting a financial jolt? Is she downloading the belt tightening onto banks?  What's driving this?
...They said it could be a sign that the Fed under Yellen will take a more aggressive stance on bank regulation.

In her speech, Yellen said further actions to address risks, such as requiring firms to hold more capital, would likely apply only to the largest, most complex banks. But she suggested that other requirements could be applied more broadly to medium-size banks and non-bank financial institutions.

Karen Shaw Petrou, an analyst who heads Federal Financial Analytics in Washington, said Yellen also appeared to be signaling a desire to ensure that in tightening rules for big banks, regulators don't just drive risky behavior into less regulated areas of the financial system. These areas are often called the shadow banking system.

"The threat is if all you do is regulate the big banks, the risk will move to the non-banks," Petrou said. "Yellen is signaling that the Fed will seek to address that problem."
It sounds like it might be more about regulation and control as far as the drivers of this thinking goes. But the timing is oddly curious. 
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