Fed's Plosser: Clear Regulatory Rules Are Best
NEW YORK--Federal Reserve Bank of Philadelphia President Charles Plosser said Tuesday any further reforms of the financial regulatory system should feature clear rules that boost the market's own ability to contain risks.
'Our regulatory framework is becoming increasingly complex, which has led to rising compliance costs as well as enforcement costs,' Mr. Plosser said in the text of a speech prepared for a conference at his bank.
'An increased role for simple regulatory mechanisms that are harder to evade--and even better, mechanisms that utilize market forces to discipline firm behavior--is superior to an ever-expanding list of complex rules that seeks to cover every possible outcome,' Mr. Plosser said in his speech.
He explained that 'simple, transparent regulatory mechanisms make it easier for market participants to predict how regulators are likely to behave.' From such a regime, it is easier for regulatory authorities 'to credibly commit to implementing the regulations in a consistent manner, thereby increasing the effectiveness of the regulatory regime.'
Mr. Plosser's speech didn't address monetary policy or the economic outlook. The official's views on the best form of regulatory rule-making mirror similar views advanced in past speeches.
In his remarks, Mr. Plosser worried that complex rules don't do well in a rapidly evolving financial landscape. 'Markets often evolve faster than the regulations; detailed rule writing that underlies much of the complex regulation can become obsolete, which then requires more rule writing,' the official said.
The central banker offered an example of what he would like to see. Mr. Plosser said 'higher capital requirements based on the leverage ratio, as opposed to overly complex risk-weighting schemes, might lower both compliance and enforcement costs while achieving similar or better outcomes in terms of the safety and soundness of individual institutions as well as overall financial stability.'
Mr. Plosser's remarks came on a day when federal regulators were moving to make the nation's eight largest banks collectively raise $68 billion in additional capital to bolster their positions in case of market stress.
Post a Comment for "Fed's Plosser: Clear Regulatory Rules Are Best"