Three-Tiered Risk :: Broadcast Script and Sound Bite
Time: 60 seconds, with sound bite.
| Video Sound Bite |
A researcher at the Federal Reserve Bank of Cleveland is proposing a three-tiered system for regulating systemically important financial institutions.
Tier one would include high-risk institutions, such as large, interstate banks and multi-state insurance companies. They’d be closely monitored, undergo regular stress tests, and might have to maintain enough cash reserves to deal with stresses on their business.
Tier two would include moderately complex financial institutions, such as larger regional banks. They’d undergo periodic stress tests, and there might be limitations on their portfolios and on their exposure to counterparties.
Tier three would include non-complex financial institutions, such as community banks. They’d be lightly regulated because of their low risk to the financial system.
“While there’s no guarantee we can prevent the next crisis, if the playing field is leveled and the advantages of being systemically important are minimized, it should lead to a more stable financial system that will serve all of us better in the future.”
That was economist James Thompson of the Cleveland Fed, and he says the goal of this proposal is to prevent another financial crisis without constraining the market.