On March 7, 2016, US Board of Governors of the Federal Reserve System Governor Lael Brainard provided an outlook on US economic conditions, an overview of the importance of financial market liquidity and the resilience and resolvability of large interconnected banks. With respect to liquidity, Brainard noted that day-to-day liquidity has not declined notably but that there have been changes to the characteristics of liquidity, including increased segmentation. She also noted the importance of recent proposals by the Commodity Futures Trading Commission and the Securities and Exchange Commission to understand the use of algorithmic trading and its impact on trading markets. With respect to improving the resilience and resolvability of systemic banking organizations, she noted that as a result of capital and liquidity regulations and stress tests, US banking organizations are now holding $800 billion more in high-quality liquid assets than they were in 2011. She noted the capital surcharge for global systemically important banks and that she would hope to see it eventually integrated into the Federal Reserve’s Comprehensive Capital Analysis and Review. Governor Brainard noted that the Federal Reserve will be reviewing comments to its proposed rule on total loss-absorbing capacity, and that the long-term debt requirement in the proposed rule is a critical component of ending “too big to fail.”
Governor Brainard’s speech is available at: http://www.federalreserve.gov/newsevents/speech/brainard20160307a.htm.