Monday Fed Roundup: Janet Yellen Says Something Scary

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Janet Yellen, who may or may not be the next Ben Bernanke, would feel a whole lot better if U.S. banks kept a few more bucks handy.

A majority on the Federal Reserve Board has signaled the central bank may need to require the nation's largest banks to carry fatter cushions against losses.

Fed Vice Chairwoman Janet Yellen became at least the fourth board governor to signal they may need to impose stiffer capital requirements, according to a copy of remarks she was set to make Monday in Shanghai….

"I'm not convinced that the existing SIFI regulatory work plan, which moves in the right direction, goes far enough," Ms. Yellen said, using the shorthand for systemically important financial institutions, regulatory jargon for firms that could inflict widespread damage on the economy should they fail….

Ms. Yellen pointed to similar comments made by her colleagues Daniel Tarullo and Jeremy Stein, both Fed governors, and said "it may be appropriate to go beyond" the so-called capital surcharge for the biggest, most complex banks that international regulators in Basel, Switzerland, devised after the crisis. Mr. Bernanke in a May speech mentioned the need for higher capital requirements at complex banks.

Meanwhile, now that they've gotten permission to say so from on high, a couple of regional Fed presidents are on record admitting that all good things must end, and that the glorious reign of QE2 may eventually draw to a close.

Federal Reserve Bank of San Francisco President John Williams said policy makers may start reducing the pace of bond purchases over the next three months and potentially end quantitative easing by year-end.

With continued “good signs” on jobs and confidence in a “substantial improvement” I could see as “early as this summer some adjustment, maybe modest adjustment downward, in our purchase program,” he said today in Stockholm. The program “is doing this great job of helping the economy gain momentum, and I would want to see that continue well into the second half of this year, but if things, again if they go well, you could imagine ending the program by the end of the year.”

The Federal Reserve is nearing the day where it can consider reducing the size of its bond-buying stimulus effort, but even when that happens, smaller-sized purchases are unlikely to be the major shift in policy some think them to be, a veteran U.S. central bank official said.

In an interview Monday, Federal Reserve Bank of Atlanta President Dennis Lockhart weighed in on his outlook for what is currently an open-ended $85 billion-a-month program that buys Treasury and mortgage bonds. The effort aims to lower borrowing costs, driving up growth and lowering the unemployment rate.

Yellen: Banks May Need Stiffer Capital Requirements [WSJ]
Fed's Williams Says Sees Potential QE Taper This 'Summer' [Bloomberg]
Fed's Lockhart: Nearing Time to Trim Bond Purchases [WSJ]

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