Yellen to Trump: don't expect a flip-flop on financial reforms

Yellen to Trump: don't expect a flip-flop on financial reforms

United States stocks rose slightly yesterday, lifted by high-dividend-paying stocks, after Federal Reserve Chair Janet Yellen stayed silent on monetary policy in a much-anticipated speech.

Meanwhile, a speech by European Central Bank chief Mario Draghi gave little guidance on tapering the bank's bond holdings and heralded globalisation over protectionism.

"While no single factor appears to be the predominant cause of the evolution of market liquidity, some regulations may be affecting market liquidity somewhat", she said.

President Trump and congressional Republicans say numerous Obama-era rules go too far in choking off credit and burdening firms with unnecessary compliance.

Specifically, Ms. Yellen defended the annual stress testing of large banks, allowing regulators to assign stricter oversight to firms critical to the financial system and permitting regulators to step in and wind down failing financial institutions. "The next crisis is coming, and we need these stronger rules to stay in place", Harm Bandholz, chief US Economist at UniCredit Bank AG in NY, wrote in a note to clients.

In addition, she said she was open to some of the key changes that the administration, and its nominee as Fed vice chair for regulation, Randal Quarles, want to pursue. Cohn said he and his team have made headway on more specific details on their policy proposal, throwing a few bones to investors betting on major tax reform.

Yellen to Trump: don't expect a flip-flop on financial reforms
Yellen to Trump: don't expect a flip-flop on financial reforms

She quickly set expectations when she stressed that "any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years". Yellen did not mention monetary policy in her speech, leaving investors to wonder when the next interest rate hike would be.

Silver edged up 0.25% to $16.97 U.S.an ounce, while platinum fell 0.6% at $972.99 U.S.an ounce.

"I expect that the evolution of the financial system in response to global economic forces, technology, and, yes, regulation will result sooner or later in the all-too-familiar risks of excessive optimism, leverage, and maturity transformation re-emerging in new ways that require policy responses", she said.

The stability of the current system guards against a repeat, she said, while outside analysts have noted that it could also free central bankers to leave interest rates lower, instead of worrying about the impact of those low rates on financial markets.

"The events of the crisis demanded action, needed reforms were implemented and these reforms have made the system safer", she said.


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