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Center for American Progress

STATEMENT: Federal Reserve’s Refusal to Activate Countercyclical Capital Buffer Leaves Banking System Vulnerable, CAP’s Gregg Gelzinis Says
Press Statement

STATEMENT: Federal Reserve’s Refusal to Activate Countercyclical Capital Buffer Leaves Banking System Vulnerable, CAP’s Gregg Gelzinis Says

Washington, D.C. — Today, the Federal Reserve Board voted against activating the countercyclical capital buffer, a loss-absorbing equity cushion that would apply to the largest banks in the country. Gregg Gelzinis, policy analyst at the Center for American Progress, released the following statement:

The Fed’s refusal to activate the countercyclical capital buffer completely ignores the lessons learned from the 2007–2008 financial crisis. During positive economic times, as risks develop under the surface, regulators should strengthen financial safeguards to bolster the banking system in advance of the next economic downturn.

As noted in the Fed’s own financial stability report released in November, valuations across many asset classes are stretched, corporate leverage is near a 20-year high, and riskier firms have been increasing their debt the most. Now is the time for regulators to enhance the resiliency of the banking sector. Instead, the Fed and Trump-appointed financial regulators in other agencies have chipped away at the postcrisis regulatory framework. They have watered down bank capital requirements, liquidity rules, stress testing, the Volcker Rule, and more.

These actions make the financial system more fragile, rather than putting it in a better position to deal with the next economic downturn.

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For more information on this topic or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.