Building Financial System Resilience

Abstract: To conclude, a resilient financial system plays an important role in ensuring a strong economy. After the global financial crisis, steps were taken to shore up the resilience of the banking system. Systemically important banking institutions have higher capital and liquidity buffers and better risk-management systems than they did. The sound banking system was able to lend important support to households and businesses throughout the pandemic. But the financial system is dynamic, with new products, business models, and technologies being introduced, and the economic environment can change rapidly. Last year’s bank stress underscores the importance of not becoming complacent. We need to look holistically at the regulations, our methods of supervision, and our lender of last resort function to address the vulnerabilities that were revealed. This holistic approach should consider the interactions among various regulations, leaning toward simplification when possible. Recalibration should be informed by careful cost-benefit analyses. Identifying and addressing weaknesses will improve the underlying resilience of the financial system, so that we can continue to rely on it to provide its important services across the business and financial cycles and limit the need for government interventions.

Keywords: Financial Resilience; Monetary policy; Financial supervision and regulation; Banking system; Silicon Valley Bank (SVB);

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Speech

Publication Date: 2024-02-29