US Federal Reserve Chair Janet Yellen on Friday defended regulations adopted after the 2008 financial meltdown, saying they promoted stability and growth — effectively rebutting White House calls for a rollback.
The remarks came during a much-anticipated address at the annual gathering of central bankers in Jackson Hole, Wyoming, and followed efforts by US President Donald Trump’s administration to scale back legislation adopted to prevent another collapse in the financial system. The administration blames such regulations for stifling economic growth.
Yellen offered scant clues as to whether the Fed would raise interest rates again this year, something increasingly in doubt.
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In her remarks, Yellen said stress-testing had caused banks to increase their capital cushions and improve risk management, while asset quality had risen and reliance on short-term wholesale funding was down by half.
While there was some contradictory evidence as to whether the reforms were hindering economic activity, she pointed to assessments which found “sizable net benefits to economic growth from higher capital standards.”
“The steps to improve the capital positions of banks promptly and significantly following the crisis... have resulted in a return of lending growth and profitability among US banks more quickly than among their global peers,” Yellen said.
Trump has denounced the limitations imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, saying they hinder lending.
He directed the US Department of the Treasury to review the legislation for possible changes, but no substantive policy proposals have yet emerged and bank profits have been robust.
Yellen warned that “sooner or later,” markets would again experience “excessive optimism,” leveraging and other threats that could require new regulatory responses.
“We re-learned this lesson through the pain inflicted by the crisis,” Yellen said.
However, if governments are mindful of the dangers, “we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crises more quickly.”
Yellen’s term is due to expire in February next year and Trump has said he may reappoint her, but he has also floated the possibility of naming National Economic Council director Gary Cohn to replace her as Fed chair.
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