Prudential Supervision Quotes

I support adjustments designed to enhance the efficiency and effectiveness of regulation without sacrificing safety and soundness or undermining macroprudential goals.

It is probably the case that some regulation of financing will make crises less likely, and I would say higher capital requirements are an almost fail-safe way to make banks safer. But there are a lot of other things that may not be doing that, and so we need to be careful about sort of, like, rushing to one conclusion or another.

We don't have the necessary laws or powers to deal with failing non-bank institutions. If they're a big bank, the depositor has deposit insurance, and the regulators can wind them down without throwing them into bankruptcy.

Large financial institutions in this country will always play a role that is essential to our economic growth. But they must only be permitted to grow and interconnect, throughout our economy, under careful oversight and with a mechanism for allowing those connections to be broken safely.

The basic theory of bank regulation is that, left to their own devices, bankers would make banks too risky, so regulators and supervisors are there to make banks more boring. A bank is, roughly, a big pot of assets bought with depositors’ money; the bank owns essentially an option on those assets. If the assets go up, the bank gets a highly leveraged return; if the assets go down, the losses are largely the depositors’ (or the taxpayers’) problem. “Heads I win, tails you lose” … So banks have incentives to buy high-risk, high-return assets with as much leverage as possible, and risk-based capital regulation and prudential bank supervision counteract those incentives. The bankers — who own stock in their banks and get paid bonuses for making money — push for more risk and more volatility, and the bank supervisors push back.

The Bankers' New Clothes makes a simple, powerful argument: that banks need to raise more capital. It is entirely persuasive that the extent of their leverage makes the financial system fragile, and it clearly and patiently demolishes all the counter-arguments made by the banks and their lobbyists.

Our overriding goal in restructuring our financial architecture should be that taxpayers never again have to save a failing financial institution.

In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.

Our objective in regulation should be to put in place tough enough regulation and capital and liquidity standards that we level the playing field and make it costly.