Summary of Financial Stability a Decade After the Onset of the Crisis

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Financial Stability a Decade After the Onset of the Crisis summary
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A speech Federal Reserve Chair Janet L. Yellen gave at a Fed symposium in August 2017 reveals this influential figure’s views on the recovery of the global financial system since the 2008 crisis, as well as her thoughts on where improvements are in order and where potential dangers still lurk. The tone of her speech is, in general, positive, and it gives reason for cautious optimism about the future: “Banks are safer,” she says. Even so, Yellen warns about complacency in the face of continuing complexity and the “unexpected side effects” that regulation could cause. getAbstract recommends this brief but illuminating text to financial professionals, investors and Fed watchers.

In this summary, you will learn

  • Why US Federal Reserve Chair Janet L. Yellen believes the global financial system is much stronger today than it was before the 2008 financial crisis, and
  • What the Fed and other governing organizations around the world are doing to reinforce the financial system while encouraging economic growth. 
 

About the Author

Janet L. Yellen was the chair of the Board of Governors of the US Federal Reserve System from 2014 to 2018.

 

Summary

The causes of the 2008 economic crisis were not so different from those that spurred previous crises. Banks engaged in risky activities, such as lowering borrower qualifications for mortgage loans, causing a housing bubble to form. At the same time, derivatives such as mortgage-backed securities created new levels of risk for financial institutions. After the collapse of the housing and credit markets, the United States and other countries quickly moved toward reforms to shore up the financial system. Chief among them were measures to “increase the loss-absorbing capacity of banks,” regulate funding and liquidity issues, create an alternative to bankruptcy for major financial institutions, and place “systemically important banks” under greater regulatory scrutiny. Changes also included increasing bank capital requirements, hiking the “leverage buffer” of the biggest banks to 5%, implementing stress tests, revising money market fund regulations and applying regulatory reforms to shadow banks. 


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