Janet Yellen says rules might need to be strengthened further to bolster largest banks
By Martin Crutsinger
The Federal Reserve might be about to turn more aggressive in its regulation of the financial system.
Fed Chairwoman Janet Yellen suggested Tuesday that current regulatory rules might not be enough to prevent the kind of risk-taking that triggered the 2008 financial crisis and nearly toppled the entire banking system. Yellen told a banking conference in Atlanta that current rules on how much capital banks must hold to protect against losses don’t address all threats. The Fed’s staff is considering what further measures might be needed, she said. At the same time, she said the Fed would review the likely effects of imposing stricter rules on banks. Banks and their advocates have warned that further tightening regulation would lead to reduced lending to businesses and could slow economic growth. Analysts said Yellen’s message echoed remarks that Daniel Tarullo, a Fed governor, has made in the past. They said it could be a sign that the Fed under Yellen will take a more assertive stance toward bank regulation. Karen Shaw Petrou, an analyst who heads Federal Financial Analytics in Washington, said Yellen appeared to be signaling a desire to ensure that in tightening rules for big banks, regulators don’t just drive risky behavior into less regulated areas of the financial system. “The threat is if all you do is regulate the big banks, the risk will move to the non-banks,” Petrou said. “Yellen is signaling that the Fed will seek to address that problem.”