NEW YORK, Oct 21 (Reuters) - The U.S. Federal Reserve may introduce more measures to test big banks’ capital and liquidity levels are strong enough to safeguard the financial system, the Fed point person on regulation said on Friday.
Fed Governor Daniel Tarullo nodded to a new research effort within the U.S. central bank to possibly reinforce its regular “stress tests” of large financial firms seen to pose a risk to the economy in the event of failure.
Beyond the Fed’s existing demands for bank capital requirements and resolution plans called “living wills,” Tarullo said “others may be forthcoming as a result of the research program the Federal Reserve is launching to consider the potential for additional explicitly macroprudential features in capital and liquidity stress testing.”
Tarullo, who did not comment on monetary policy in his speech text, referenced the work last month.
Speaking at Columbia Law School, the top Fed regulator acknowledged it was “a little challenging” determining whether more or fewer regulations were needed in the wake of the landmark 2010 Dodd-Frank legislation, which was the U.S. response to the financial crisis.
The Fed, he said, must closely monitor firms looking to dodge requirements for capital and liquidity, which were raised after the crisis. “My own sense is that the greatest risks to financial stability lie in activities with vulnerability to funding runs and asset fire sales,” Tarullo said. (Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)
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