Post corrected to show Brooksley Born is a former head of the Commodity Futures Trading Commission (CFTC) not a former Fed board governor.
Underlying the Federal Reserve recent announcement on new capital rules was a general sense of “mission accomplished.” The U.S. central bank, also a key financial regulator, has finally implemented requirements that it says could help prevent a repeat of the 2008 banking meltdown by forcing Wall Street firms to rely less heavily on debt, thereby making them less vulnerable during times of stress.
As Fed Chairman Ben Bernanke put it in his opening remarks:
Today’s meeting marks an important step in the board’s efforts to enhance the resilience of the U.S. banking system and to promote broader financial stability.
The final rule that we’re considering today puts in place a comprehensive, regulatory capital framework that the board has been developing for some time in consultation with our domestic and international colleagues in central banks and regulatory agencies. Critically, this framework requires our banking organizations to hold more and higher quality capital, capital that will act as a financial cushion to absorb future losses while reducing the incentives for firms to take excessive risks.
Strong capital requirements are essential if we hope to have safe and sound banks that can weather economic and financial stress while continuing to meet the credit needs of our economy.