The Federal Reserve Board's role in supervising institutions that borrow from the discount window is not very different from the role a systemic risk regulator would play, Eric Rosengren, the president and chief executive of the Federal Reserve Bank of Boston, said Monday.
"It is noteworthy that the role of closely monitoring solvency and liquidity risk on an ongoing basis would be very similar to what might be expected of discount window operations, were the discount window to be made available to systemically important institutions regardless of whether they owned a depository institution," he told a risk regulation summit in Brussels. "This of course suggests the logic of a role for the discount window operator — in the United States, the Federal Reserve — in macroprudential supervision."
Rosengren's speech comes as congressional leaders have raised concerns about saddling the Fed with systemic risk responsibilities. He laid out a vision of a systemic risk regulator that would be aggressive during periods of growth.
"A macroprudential supervisor should be particularly attuned to changes — especially dramatic ones — in such areas as leverage, asset-liability mix, or underwriting standards," he said. "This requires the macroprudential supervisor to be willing and able to 'lean against the wind' during booming markets or other periods. It is not that economic conditions are necessarily riskier in good times, but rather that economic actors become more confident and thus more willing to incur risks."