Janet Yellen on Bank Regulation

A blog about business and economics.
Oct. 10 2013 1:45 PM

Janet Yellen on Bank Regulation

Keeping tabs on the banks.

Photo by KAREN BLEIER/AFP/Getty Images

I wrote yesterday that Janet Yellen's views on the Fed's bank regulation role aren't particularly well-known by the public. Someone who works in the Federal Reserve system pointed me to this 2010 speech that Yellen delivered to the National Association of Business Economists as one of her more thorough statements on the subject. I think you can see three main takeaways from this:

1. Emphasis on capital and leverage: Some people's regulatory vision focused very heavily on the idea of "too big to fail" institutions and the desirability of making them somehow faller. Other people's regulatory vision is focused very heavily on the idea of post-crisis cleanup operations—crisis response rather than crisis prevention. Yellen, in line with the actions and statements of current Fed Governor Dan Tarullo, is focused on the idea of bank leverage and bank capital. The idea here is that if banks borrow less money, they are much less likely to fail.


2. Middle ground on the international aspect: Financial services is a global industry, and that has consequences for regulation. One take is that the United States should plunge full speed ahead with tough regulations with no regard to whether other countries are setting a lower bar in a way that puts our bank at a competitive disadvantage. Another take is to go to the opposite pole, and argue that nothing should be done outside the multilateral Basel process. Yellen basically just acknowledges the tradeoff here and sensibly says that you want to avoid either extreme.

3. Monetary policy and bank regulation are different things: How you regulate your banking sector impacts macroeconomic conditions. And how you conduct your monetary policy impacts what banks try to do. That leads some people to conclude that monetary policy ought to be conducted with an eye to bank regulation goals. Yellen rejects this view and says that the Fed should think of these as separate issues that can be addressed with separate tools. This is especially important because it seems to be a subject that Obama's Fed appointees disagree about amongst themselves.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


The World

The Budget Disaster that Sabotaged the WHO’s Response to Ebola

How Movies Like Contagion and Outbreak Distort Our Response to Real Epidemics

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

Everything You Should Know About Today’s Eclipse

An Unscientific Ranking of Really, Really Old German Beers


Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.


The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Can Democratic Sen. Mary Landrieu Pull Off One More Louisiana Miracle?

  News & Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
Oct. 23 2014 11:51 AM It Seems No One Is Rich or Happy: I Looked
The Vault
Oct. 23 2014 12:02 PM Delightfully Awkward Studio Action Shots of Players, Used on Early Baseball Cards
  Double X
The XX Factor
Oct. 23 2014 11:33 AM Watch Little Princesses Curse for the Feminist Cause
  Slate Plus
Oct. 23 2014 11:28 AM Slate’s Working Podcast: Episode 2 Transcript Read what David Plotz asked Dr. Meri Kolbrener about her workday.
Brow Beat
Oct. 23 2014 12:01 PM Who Is Constantine, and Should You Watch His New Show?
Oct. 23 2014 11:45 AM The United States of Reddit  How social media is redrawing our borders. 
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.