NY Federal Reserve Bank President Cites Progress in Cross-Border Regulation

Federal Reserve Bank of New York President and CEO William C. Dudley voiced optimism about the “substantial progress” made in “strengthening the global banking system.” He cited the establishment of capital and liquidity standards for internationally active banks as an example. In addition, he noted that “steps have been taken” to respond to the failure of systemically important financial firms on a cross-border basis.

Even so, Mr. Dudley asserted, “more needs to be done.” His recommendations include: (i) identifying and dismantling the impediments to orderly cross-border resolutions, and (ii) enhancing cross-border regulatory cooperation through the “greater exchange of confidential supervisory information so that national regulators can be fully informed about the conditions of the banks that operate within their borders.”

Mr. Dudley asked the following questions, which he said were raised by the idea of a convergent transcontinental economy:

  • Can policy strategies ensure that the global economy will escape from this long period of low inflation and real interest rates? If so, what are those strategies?
  • Does fiscal policy have sufficient scope to assume part of the burden of ending this period of persistently low inflation and interest rates?
  • Is the economy going through a period of secular stagnation or is it simply at the midpoint of a deleveraging process that will dissipate gradually?
  • Why hasn’t investment spending reflected the low level of interest rates?
  • What underlying factors have contributed to the recent slowdown in the growth of global productivity?
  • Is it possible for Europe to realize a banking union with a common deposit guarantee scheme?
  • Are there practical opportunities for furthering additional regulatory and supervisory convergence between the United States and Europe?

Mr. Dudley delivered his remarks at a conference hosted by the European Commission, the Federal Reserve Bank of New York and the Centre for Economic Policy Research: “Transatlantic Economy: Convergence or Divergence?”

Lofchie Comment: Since Mr. Dudley is pondering the lack of growth in investment spending and whether the economy is going through a period of secular stagnation, the ideal question for him to ask might be this: are there regulations that are materially damaging to economic growth? New rules have imposed billions of dollars’ worth of compliance and transactional costs. Many of those rules are not particularly sensible and a fair number are actually destructive. The time for regulators to exercise self-criticism is long past due. Unfortunately, too many seem to believe that economic growth can be achieved only by adding more regulations, without first conducting a meaningful analysis of which rules might work, which rules might fail, and which are not worth the costs their implementation would demand.

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