Center for American Progress

It’s Time for the Fed to Activate Safeguards Against Financial Bubbles
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It’s Time for the Fed to Activate Safeguards Against Financial Bubbles

Author Gregg Gelzinis advises the Federal Reserve to activate the countercyclical capital buffer in order to mitigate mounting risks in the financial sector.

Authors

  • Gregg Gelzinis

It is crucial for banks to maintain sufficient loss-absorbing capital buffers to weather the next economic downturn. Research shows, however, that bank capital levels are still too low. It is particularly important for regulators to address this issue promptly given the economy’s position in the business cycle.

The U.S. economy is in its ninth year of the post-financial crisis economic expansion. As with most prolonged expansionary periods, risks are building under the surface despite rosy topline economic figures. The Federal Reserve must tighten financial safeguards during this economic boom. The first step should be activation of the countercyclical capital buffer (CCyB)—an additional loss-absorbing equity buffer for the largest banks in the country.

The above excerpt was originally published in MarketWatch. Click here to view the full article.

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Authors

Gregg Gelzinis

Associate Director