Will More Regulation Bring Financial Stability
Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline.
“We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks… But when we protect creditors, when we protect people from failure, we encourage them to take risks.”
Bernanke made clear in March that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed.
“Government regulation and government oversight will never replace the marketplace officially. But when there is regulation they will look for ways around that regulation in order to be successful,” he said.
“We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.”