ATLANTA — The U.S. Federal Reserve is considering further steps to force big banks to hold more capital, and sees a case for other stability-enhancing measures for more shadowy areas of Wall Street as well, Fed Chair Janet Yellen said on Tuesday.
The Fed has been pushing banks to strengthen their balance sheets since the 2007-2009 financial crisis, and last week joined other regulators in requiring the eight largest U.S. banks to increase their capital levels by some $68 billion in total.
“There might be room for stronger capital and liquidity standards for large banks than have been adopted so far,” Yellen said in a pre-recorded video for a financial markets conference hosted by the Atlanta Federal Reserve Bank.
She cited a 2010 study by the Basel Committee, an international standard-setting body, that suggested tighter standards would provide economic benefits.
The United States is in the process of implementing new international capital and liquidity standards known as Basel III, which will be phased in between 2015 and early 2019. The rules are meant to help banks weather short-term funding crises.
Yellen said the U.S. central bank's staff was “actively considering” whether even more needed to be done to address risks in the so-called short-term wholesale funding market, which is a significant source of funding for firms.
Firms in that corner of the market were protagonists in the financial crisis, when investors fled establishments such as Lehman Brothers and even money market mutual funds previously deemed super safe.
The internationally-adopted Basel standards that will require lenders to hold separate buffers of cash and bonds “do not fully address the financial stability concerns associated with short-term wholesale funding,” Yellen said.
She said tougher capital and liquidity rules would likely apply only to the largest and most complex banks, but that other measures, such as rules on how heavily firms could rely on borrowing in securities transactions, could extend market-wide.