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Bank Supervisory Goals versus Monetary Policy Implementation

Larry Wall ()

No 2021-03, Policy Hub from Federal Reserve Bank of Atlanta

Abstract: The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their operations in the Treasury securities market in 2020. The article concludes with a discussion of the issues associated with changing specific banking regulations and some more general suggestions for dealing with these types of conflicts.

Keywords: banking regulations; capital adequacy; bank liquidity regulation; interest on reserves; Treasury market; repo market (search for similar items in EconPapers)
JEL-codes: E52 E58 G28 (search for similar items in EconPapers)
Pages: 14
Date: 2021-03-29
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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DOI: 10.29338/ph2021-03

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