Brainard says Fed should impose capital buffers on banks, says interest-rate path 'appropriate'

MarketPulse


Federal Reserve Gov. Lael Brainard on Friday suggested it may be time for the central bank to impose countercyclical counter buffer on banks, a step her colleagues on the board have resisted. “At a time when cyclical pressures have been building and bank profitability has been strong, it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant,” she said. She said corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards, and mutual funds that are exposed have liquidity mismatches. On the economy, she said domestic economic momentum has been strong and that there are good reasons to expect growth to remain solid next year. “The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded. That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves,” Brainard said.

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