Janet Yellen was confirmed today as the first woman to lead the U.S. Federal Reserve — becoming one of the most powerful people in global finance and the top regulator in the U.S. financial system.
The Center for Public Integrity spoke to Yellen in June about her views on bank regulation and supervision. The incoming Fed chairwoman appears to be someone who will be tougher than her predecessor when it comes to financial oversight.
When it comes to monetary policy by contrast, Yellen is known as a “dove,” someone who favors lowering interest rates to help boost job growth at the risk of allowing some inflation.
On Fed policy:
“I would be strongly committed to working with the FOMC to continue promoting a robust economic recovery … I consider it imperative that we do what we can to promote a very strong recovery.”
“About 36 percent of those unemployed have been unemployed for more than six months. This is a very unprecedented situation. We know that those long spells of unemployment are particularly painful for households, impose great hardships and costs on those without work, on the marriages of those who suffer these long unemployment spells and on their families.”
On financial stability:
“One of our top priorities is ramping up and monitoring of the financial system as a whole to detect financial stability risks. That’s something we weren’t doing on an adequate basis before the crisis.”
“We cannot rule out the possibility that monetary policy might have to do something related to financial stability … Monetary policy could be creating financial risk, even while we’re trying to achieve other concrete goals … We need to know what those risks are.’’
On mega-bank regulation:
“It’s extremely important for our banks to have more capital, higher quality capital.”
“There are further steps that we will be taking with other regulators down the line to make sure that the most systemically important institutions, those who failure would create financial distress, will be asked to hold more capital.”
Yellen says believes that the 2.5 percent capital surcharge proposed for systemically important financial institutions may not be enough.
On the market benefits enjoyed by mega-banks:
“Our objective in regulation should be to put in place tough enough regulation and capital and liquidity standards that we level the playing field and make it costly. We should make it tougher for them to compete and encourage them to be smaller.”
On asset bubbles:
“No one who lived through that financial crisis would ever want to risk another one that could subject the economy to what we’re painfully going through and recovering from. We have a variety of different tools that we can use if something like that were to occur.”
“It’s important for the Fed, hard as it is, to attempt to detect asset bubbles while they’re forming.”
“I don’t see evidence at this point in major sectors of asset-price misalignment, at least at the level that would threaten financial stability.”
On bank oversight:
“I absolutely believe that our supervisory responsibilities are critical and they’re just as important as monetary policy. We need to take just as much time to devote to them.”
The Fed is taking a “belt and suspenders” approach, Yellen said.
“We don’t want these entities to fail. We want to make them much more robust and less likely to come under pressure,” she said. ”Then if something did happen, we would have a way to deal with it that we were not able to do during the financial crisis.”
On Congress, a balanced budget and fiscal policy:
“I certainly recognize the importance of the objective of putting the U.S. deficit and debt on a sustainable path … but some of the near term reductions in spending we have seen have certainly detracted from the momentum of the economy and from demand, making it harder for the Fed to get the economy moving, making our task more difficult.”
“It certainly would be helpful going forward for deficit reduction efforts to focus on the medium term while not subtracting from the impetus we need to keep a fragile economy moving forward.”
“We are worried about a fragile economy and more supportive fiscal policy or one that creates less drag would be helpful.”
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