FRB Governor Reviews Financial Stability Policy

Board of Governors of the Federal Reserve System ("FRB") Governor Lael Brainard reviewed the current state of prudential financial stability regulation including policies that address "tail risk." Prudential, macroprudential and countercyclical policies, according to Ms. Brainard, are crucial to minimizing the risks that threaten financial stability.

In remarks at the Stern School of Business at New York University, Ms. Brainard stated that the FRB focuses on correcting vulnerabilities rather than attempting to predict "adverse shocks." Vulnerable areas that were cited include "asset valuation and risk appetite, borrowing by the nonfinancial sector, liquidity risks and maturity transformation by the financial system and leverage in the financial system." Noting that overall risk remains moderate, Ms. Brainard emphasized the importance of continuing to monitor existing and emerging vulnerabilities. She reported that the FRB is looking into the extreme