Bank Supervisory Goals versus Monetary Policy Implementation
Abstract: The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their operations in the Treasury securities market in 2020. The article concludes with a discussion of the issues associated with changing specific banking regulations and some more general suggestions for dealing with these types of conflicts.
File(s): File format is application/pdf https://www.atlantafed.org/-/media/documents/research/publications/policy-hub/2021/03/29/03-bank-supervisory-goals-versus-monetary-policy-implementation.pdf
Provider: Federal Reserve Bank of Atlanta
Part of Series: Policy Hub
Publication Date: 2021-03-29