At Jackson Hole, Yellen defends post-crisis regulation

[WASHINGTON] Federal Reserve Chair Janet Yellen on Friday defended regulations adopted after the 2008 financial meltdown, saying they promoted stability and growth - effectively rebutting White House calls for a rollback.

The remarks came during a much-anticipated address at an annual economists' symposium at Jackson Hole, Wyoming and followed efforts by Donald Trump's administration to scale back legislation adopted to prevent another collapse in the financial system. The administration blames such regulations for stifling economic growth.

Also addressing the gathering on Friday, European Central Bank President Mario Draghi warned that developed nations were drifting toward protectionism as a response to inequalities provoked by trade liberalisation.

But both central bank chiefs scrupulously avoided making policy pronouncements that could unsettle markets.

Ms Yellen offered scant clues as to whether the Fed may raise interest rates again this year, something increasingly in doubt. And Mr Draghi made no mention of when the ECB may wind down a bond-buying stimulus program put in place after the crisis.

Mr Draghi's decision not to address the matter saw the euro's value spike nearly 2.5 per cent against the US dollar on exchange markets shortly after his remarks were released at 1900 GMT.

In her remarks, Ms Yellen said stress-testing had caused banks to increase their capital cushions and improve risk management while asset quality had risen and reliance on short-term wholesale funding was down by half.

While there was some contradictory evidence as to whether the reforms were hindering economic activity, she pointed to assessments which found "sizable net benefits to economic growth from higher capital standards."

"The steps to improve the capital positions of banks promptly and significantly following the crisis... have resulted in a return of lending growth and profitability among US banks more quickly than among their global peers," Ms Yellen said.

President Donald Trump has denounced the so-called the Dodd-Frank financial reforms - named after the two lawmakers who originally sponsored them - saying they hinder lending.

He directed the Treasury Department to review the legislation for possible changes but no substantive policy proposals have yet emerged and bank profits have been robust.

Ms Yellen warned that "sooner or later" markets would again experience "excessive optimism," leveraging and other threats that could require new regulatory responses.

"We re-learned this lesson through the pain inflicted by the crisis," Ms Yellen said.

But if governments are mindful of the dangers, "we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crises more quickly."

Ms Yellen's term is due to expire in February and Mr Trump has said he may reappoint her, but he has also floated the possibility of naming current economic adviser Gary Cohn to replace her as Fed chair.

For want of answers from Ms Yellen on the direction of monetary policy, investors sent the US dollar tumbling, leaving it down 0.8 per cent against a basket of currencies shortly after 2000 GMT.

Mr Draghi used his remarks to call for stronger public policies to support those left behind by globalisation, including education and vocational training "People are concerned about whether openness is fair, whether it is safe and whether it is equitable," Mr Draghi said.

Britain's shock vote to exit the European Union and Donald Trump's nationalist presidential campaign opposing open borders have sent waves of unease through quarters that normally promote trade liberalisation, such as the International Monetary Fund and World Bank.

"A turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy," he said.

AFP