Board of Governors of the Federal Reserve System ("FRB") Chair Janet L. Yellen asserted that post-crisis regulatory reforms have been largely successful and warned against significant changes. At the FRB's annual symposium in Jackson Hole, Wyoming, Chair Yellen explained how the financial system has recovered since the crisis:
"[R]eforms have boosted the resilience of the financial system. Banks are safer. The risk of runs owing to maturity transformation is reduced. Efforts to enhance the resolvability of systemic firms have promoted market discipline and reduced the problem of too-big-to-fail."
Post-crisis, policymakers in the United States quickly implemented reforms to mitigate the effects and to form a more effective domestic and global framework for the future, she said. Steps taken included (i) increasing the "loss-absorbing capacity" of global banks, (ii) mitigating risks associated with maturity transformation in short-term funding markets, (iii) establishing an orderly liquidation authority and (iv) taking other measures to strengthen resolvability. Chair Yellen argued that all of these reforms have strengthened the financial system and made it significantly safer.
Considering the question of whether Dodd-Frank reforms have become overly restrictive and are now failing to support growth, Chair Yellen acknowledged that "credit may be less available to some borrowers," and certain regulatory factors may be affecting mortgage lending. She said that the FRB is taking action to reduce complexity for regulations that affect smaller banks.
Chair Yellen cautioned that regulators and policymakers must continuously monitor the effects of reforms and be prepared to make appropriate adjustments. Specifically, Volcker Rule adjustments might be necessary, but she warned against dramatic regulatory overhaul:
"[T]he new regulatory framework overall has made dealers more resilient to shocks, and, in the past, distress at dealers following adverse shocks has been an important factor driving market illiquidity. As a result, any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years."
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