Financial stability: Incentives matter
Remarks by Thomas Hoenig, vice chairman, FDIC, at the 14th Asian Banker Summit, Jakarta, on threats to financial stability, and management incentives and outcomes. April 29, 2013 | Thomas HoenigIntroduction Last week the IMF-World Bank meetings were held in Washington, and once again world financial leaders came together in a sincere effort to find solutions to the economic malaise plaguing many countries. Despite a myriad of reforms proposed or implemented subsequent to the financial crisis of 2008, we seem unable to escape its pull. The debate continues over whether we have done enough to assure a stable financial environment supportive of growth. What kind of incentives, fiscal conditions, central bank actions, legal frameworks, asset exposures, correlations and institutional interconnections must we address to assure that global financial markets work as they should through good times and bad? The issues are truly global in nature. There is a host of possible causes affecting the world's recovery and worth discussing. My perspective is one of economic incentives, the important role they played leading up to the crisis and how they continue to affect events, making a fuller recovery more difficult to achieve. I will first focus on monetary policy and its longer-run effects on the economic environment within which financial firms operate. I will also offer my perspective of the effects of government guarantees on firm and market behaviour, and steps that remain to be taken if, in my opinion, we are to achieve a more robust and stable growth path for world economies. Monetary policy matters We all understand the fundamental role of money as a store of value and medium of exchange. However, we have come to expect more from it. We have modified and expanded its role, captured its effects on short-term interest rates and found that it can influence the economy broadly to stimulate or control economic activity. Central banks, by pushing interest rates below long-term equilibrium levels, have stimulated economic activity and achieved goals of higher employment. The perceived success of this tool ... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Basel III, Capital & Strategic Issues, Regulation, Risk and Regulationbasel III,Capital & Strategic Issues,riskregulation,Risk and Regulation, Basel III,Capital & Strategic Issues,Regulation,Risk and Regulation, Keywords:Thomas Hoenig, FDIC, Asian Banker Summit 2013, US Fed, Systemic Risk, Volcker Rule, Vickers’ Ring Fencing Thomas Hoenig, FDIC, Asian Banker Summit 2013, US Fed, Systemic Risk, Volcker Rule, Vickers’ Ring Fencing
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