On September 30, 2015, William C. Dudley, President and Chief Executive Officer of the US Federal Reserve Bank of New York, delivered a speech at the SIFMA Liquidity Forum reiterating the need to strike a proper balance between sound regulation and liquidity in financial markets. Specifically, his remarks examined market liquidity in two important fixed-income markets: the US Treasury market and the US corporate bond market. He discussed, among other things, methods on how to measure liquidity, evidence of how liquidity has changed in recent years, factors that could influence liquidity provision, and costs associated with shifts in liquidity. Dudley expressed his support for the recommendations in the recently issued interagency report on the October 15, 2014 Treasury market flash rally, including the need to better understand the implications of the evolving Treasury market structure and liquidity and how changes in regulation and market structure influence liquidity conditions more generally. Specifically, he called for study and data analysis as to whether there is a decrease in liquidity and/or an increase in liquidity risk that is costly or poses a risk to financial stability and whether regulation can be altered to improve the balance between enhancing financial stability and the costs of such regulation, including adverse impacts on liquidity.
The speech is available at: http://www.newyorkfed.org/newsevents/speeches/2015/dud150930.html.