Gary Stern, former president of the Federal Reserve Bank of Minneapolis gives an insight on how the most influential regulator in the world thinks and acts.
April 14, 2015 | Foo Boon PingGary Stern was the 11th president of the Federal Reserve Bank of Minneapolis from 1985 to September 2009, making him the second longest-serving president in Federal Reserve (Fed) history. He assumed leadership at the Fed during one of the most transformative periods in US banking history, witnessing a shift from traditional asset-liability management to off-balance sheet financing.
Concurrently, as chairman of the Federal Reserve System’s Financial Services Policy Committee, he was responsible for setting the overall direction of the financial services industry.
In 2004, he presciently co-authored Too Big to Fail: The Hazards of Bank Bailouts, where he spoke about how to deal effectively with bailouts ahead of the global financial crisis.
In the lead up to the Asian Banker Summit, he shares his thoughts on key topics.
Changing approaches to monetary policy and underlying issues
Ever since the global financial crisis, the Fed has kept its target interest rate to almost zero, and has persisted to do so despite clear signs that the US is well on its way to recovery. This is unprecedented as previous episodes of expansion had been followed swiftly by monetary tightening. Does this signal a new approach to monetary policy in the US?
According to Stern, this is a new approach that has largely been dictated by circumstances but is not a total departure from the traditional approach.
Unlike other central banks which may have a single price stability mandate, the Fed has a dual mandate with regard to price stability and employment. And the focus on keeping unemployment at a certain minimum level is in part driving the continued accommodative stance. However, there are also real fears that prolonged periods of low interest rate will accelerate inflation over time.
Another issue is how monetary policies affect bank business models. What are the implications for...
Categories:
Leadership, Liquidity Risk, Operational Risk, Regulation, Risk and Regulation, Capital Markets, Infrastructure Finance, Innovation in Business ProcessesKeywords:Gary Stern, Asset Quality, US Fed, Monetary Policy, Asian Banker Summit 2015
