“Finance and Society” conference was held at the International Monetary Fund on Wednesday, Federal Reserve Chair Janet Yellen being one of the key speakers. Yellen said the Fed is prepared to take further measures at the banking sector to make the financial system safer. These comments came as a warning to the banking industry and non-bank lenders.
Yellen pointed out the distorted system of incentives and lack of controls in the financial industry, which are considered to be main reasons of the 2008 financial crisis. She said policymakers should focus more on the entire financial system, rather than focusing only on individual firms, just like it was before the crisis.
Yellen noted all the measures that the Fed and other agencies have taken so far to ensure larger capital buffers, thus making them less risky. Meanwhile, the Fed is developing a “macroprudential tool,” which aims to prevent asset bubbles.
Upon a question, Yellen warned the potential dangers on the equity market valuations. She said equity-market valuations are “quite high” and could be a potential source of financial instability.