Fed’s Brainard Promises Reforms Following Stress Test

The United States Federal Reserve Governor Lael Brainard said on Monday that the coming months will see a number of regulatory reforms to help the financial system cope with the Coronavirus pandemic, Bloomberg reported.

Brainard’s remarks came in her speech to the Institute of International Bankers.

“We should not miss the opportunity to distill lessons from the COVID shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future, including those emanating from outside the financial system.”

“Regulators and international standard-setting bodies have an opportunity to draw important lessons from the COVID shock about where fragilities remain.”

“A number of common-sense reforms are needed to address the unresolved structural vulnerabilities in non-bank financial intermediation and short-term funding markets.”

“If properly calibrated, capital buffers or reforms that address the first-mover advantage to investors that redeem early, such as swing pricing or a minimum balance at risk, could significantly reduce the run risk associated with money funds.”

“Some have suggested that the Federal Reserve could provide standing facilities to backstop repos in stress conditions, possibly creating a domestic standing facility or converting the temporary Foreign and International Monetary Authorities (FIMA) Repo Facility to a standing facility.”

“These measures involve complex tradeoffs and merit thoughtful analysis in advancing the important goal of ensuring Treasury market resilience.”