The U.S. dollar is under pressure on Friday against a basket of currencies following a Jackson Hole speech given by Fed Chairwomen Janet Yellen who didn’t offer any insights about any key monetary policy changes and focused instead on outlining the major financial reform measures undertaken during the financial meltdown from 2007-2012.
Yellen explained that the financial reforms that were adopted during this unstable period served to boost the resilience of the financial system and now banks are safer in the wake of the financial collapse that started ten years ago and led to a rapid deterioration of liquidity and solvency within the financial sector.
Admitting that financial institutions had assumed too much risk concerning the housing market and lending standards were too lax, Yellen said that “vulnerabilities within the financial system in the mid-2000s were numerous” and the “madness of crowds” had contributed to a housing bubble in which investors and households expected rapid appreciation in house prices.
Yellen concluded that economic research supports the notion that financial reforms adopted during the financial crisis have made the financial system substantially safer and noted the loss absorption capacity among the largest banks is significantly higher.
Yellen said that any adjustments to the regulatory framework should be “modest” and preserve the resiliency of the adopted financial reforms.
She also admitted, “our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks.”
Later today at 3:00 p.m. ECB President Mario Draghi will give a speech from Jackson Hole, Wyoming at the annual symposium where central bankers and economists are gathered.
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