WASHINGTON – Federal Reserve Chair Janet Yellen said that while the majority of the post-crisis regulatory reforms have made the banking and financial systems safer and more resilient, there have been some effects on markets and lending that warrant further examination.

Speaking during her keynote speech at the Federal Reserve Bank of Kansas City’s annual monetary policy conference in Jackson Hole, Wyo., on Friday, Yellen defended the capital, liquidity and supervisory changes that the Fed and other regulators have enacted in the decade since the onset of the financial crisis.

Fed Chair Janet Yellen at the Jackson Hole economic symposium.
Pledge to be open-minded
"The Federal Reserve is committed individually, and in coordination with other U.S. government agencies, … to evaluating the effects of financial market regulations and considering appropriate adjustments," Fed Chair Janet Yellen said in Jackson Hole, Wyo, on Friday. Bloomberg News

Banks and nonbank financial firms are better capitalized, less leveraged and more resilient than they were ten years ago, she said, and that stability has positioned the U.S. for stronger growth than other countries that did not make similar changes. But the lingering concerns about the effects of lending on credit availability and liquidity, while not applicable to the economy as a whole, perhaps are relevant to subprime borrowers and small businesses.

“While material adverse effects of capital regulation on broad measures of lending are not readily apparent, credit may be less available to some borrowers, especially homebuyers with less-than-perfect credit histories and, perhaps, small businesses,” Yellen said. “Smaller firms rely disproportionately on lending from smaller banks, and the Federal Reserve has been taking steps and examining additional steps to reduce unnecessary complexity in regulations affecting smaller banks.”

Industry groups and some members of Congress have forwarded the argument in recent months that capital rules are stifling banks’ ability to extend credit to small businesses and individuals with less-than-perfect credit histories, which in turn is having a negative effect on small-business formation and other critical sources of growth. Yellen has defended the agency’s capital rules against this argument before, saying there is little evidence that small businesses that want credit cannot get it.

Yellen’s speech Friday reiterated the value of much of the Fed’s policy responses to the crisis, but sounded a more conciliatory note and said the agency — along with the Financial Stability Oversight Council and other regulators — is committed to reviewing the rules and making adjustments where they are warranted.

“The Federal Reserve is committed individually, and in coordination with other U.S. government agencies, … to evaluating the effects of financial market regulations and considering appropriate adjustments,” Yellen said. “In addition, a broader set of changes to the new financial regulatory framework may deserve consideration … [including] adjustments that may simplify regulations applying to small and medium-sized banks and enhance resolution planning.”

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