Why Charles Plosser calls for simplicity in financial regulation (Part 1 of 9)
Charles Plosser’s speech
Dr. Charles Plosser, President and Chief Executive Officer of the Federal Reserve Bank of Philadelphia, spoke at a joint conference held at the Philadelphia Fed on April 8, 2014. The topic for discussion was “Enhancing Prudential Standards in Financial Regulations,” which was co-hosted by the Federal Reserve Bank of Philadelphia, Wharton Financial Institutions Center, and the Journal of Financial Services Research.
Plosser spoke on “Simplicity, Transparency, and Market Discipline in Regulatory Reform,” providing a high-level perspective on financial regulations and financial stability. In his speech, Plosser advocated for simpler regulations for financial services firms along with greater transparency with regard to the risks undertaken by individual firms. He also spoke about the requirement for a new bankruptcy mechanism for all firms, whether systemically important or not, which would incentivize both market participants and creditors to monitor risk-taking by financial institutions.
About noted hawk Charles Plosser
Charles Plosser has been the President and Chief Executive Officer of the Federal Reserve Bank of Philadelphia since August 2006. He has been a vocal critic of the Fed’s monetary stimulus program and would like to see the end of monthly asset purchases (at $55 billion per month currently) as soon as possible. Plosser is part of the Federal Open Market Committee (or FOMC) and he’ll vote on policy this year.
After the fallout of the 2008 financial crisis, Plosser advocated for the need to preserve the U.S. Federal Reserve’s independence by drawing a distinction between fiscal and monetary policies. He’s also a keen proponent of reform that will end the notion of “too big to fail,” as he believes this notion may lead to the next financial crisis.
Some of the largest financial institutions in the U.S. include the Wells Fargo Company (WFC), Goldman Sachs (GS), and Bank of America Corp. (BAC). The Vanguard Financials ETF (VFH), which has positions in small, medium, and large cap companies in the financials sectors, has investments in all three institutions: Wells Fargo Company (WFC), at 6.64%, Goldman Sachs (GS), at 2.05%, and Bank of America Corp. (BAC), at 5.04%. All three financial institutions are also included in the S&P 100 Index (OEF). The iShares S&P 100 ETF (OEF) tracks the S&P 100 Index.
To read about Plosser’s views on the role of financial intermediaries and the risks that could arise from intermediation, please read on to Part 2.
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