Federal Reserve Gov. Christopher Waller said he would be
Waller was one of
"If there's some willingness to move on operational risk and some other things, there is a possibility that this would be put forth in a revamped way that would be acceptable," he said.
Waller noted that additional regulatory requirements for operational risk accounted for more than half of the total capital increase included in the proposal. The plan would increase capital requirements for banks with $100 billion of assets by an
The proposed framework aims to standardize the measurement of operational risk, replacing the internal models long relied upon by banks with uniform standards. But Waller said this category of risk focuses on single-instance threats such as lawsuits, cybercrimes and fraud, which are not usually considered systemic threats.
"Those are things that don't typically occur at the same time as a financial meltdown due to a macroeconomic shock," he said. "So, they're not correlated with market risk, trading risk, all the other things that might bring a bank down."
Given this distinction, Waller said he would be fine with banks relying on their existing capital to address operational issues as they arise.
"I just argue that because it's not really a threat to this, we don't need a separate bucket for this," he said. "You can use operational risk, paid for out of your standard capital bucket."
During the webcast, Waller also addressed his views on the economy and monetary policy. Harkening back to a speech he
Waller said he is "increasingly confident" that the Fed's monetary policy is positioned to bring annualized inflation back to 2%.
"That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the [Federal Open Market Committee] has done enough to achieve price stability," he said during prepared remarks. "Hopefully, the data we receive over the next couple of months will help answer that question."
Separately, Fed Gov.
Bowman added that thanks to a number of variables — including government stimulus, educational trends and workforce dynamics — she anticipates that interest rates will not return to their pre-pandemic lows, as there has been a relative shift in consumer behavior away from saving and toward investing. She noted that a higher-rate environment could have positive implications for the economy and financial stability.
"In some respects, a higher longer-run level of the federal funds rate would be a welcome development, as this would allow the FOMC to more effectively respond to future negative economic shocks by lowering the policy rate," Bowman said. "Structurally higher interest rates might also lead to less concern about the possible financial stability effects of reach-for-yield behavior, as higher interest rates ease pressure on institutions like life insurance companies and pension funds that manage extended-duration liabilities."
In terms of potential destabilizing events, Waller said a shock is unlikely to occur in the segments of the economy being most scrutinized. He noted that weaker earnings and rising delinquency rates are signs that the Fed's monetary policy tightening is working as planned. As for other often-discussed topics, Waller said the risk posed by the commercial real estate sector is overstated.
"Everybody knows there is going to be repricing in commercial real estate. Repricing occurs, somebody wins, somebody loses," he said. "We all know repricing and refinancing is going to happen, so it's not a shock. It's well anticipated. Everybody sees it coming."
Waller added that the repricing in the sector will take years to play out. He also acknowledged that it will cause some amount of pain, particularly for property owners who have to write down values and incur losses.
"That's just the way markets work," Waller said. "I'm not too concerned about commercial real estate."
