Edward Kelley

The inflation teakettle isn't whistling yet, but I think the temperature inside of it is rising rather markedly.

I would argue that banks remain quite special in their susceptibility to runs and in the severe consequences that a large-scale banking panic would involve today. Balancing the need for a banking "safety net" to defuse potential bank runs with the need to create the right incentives for banks in assessing and assuming risk is one of the most difficult challenges we face as central bankers.

I would argue that banks remain quite special in their susceptibility to runs and in the severe consequences that a large-scale banking panic would involve today. Balancing the need for a banking "safety net" to defuse potential bank runs with the need to create the right incentives for banks in assessing and assuming risk is one of the most difficult challenges we face as central bankers.

As I hope my previous comments make clear, regulatory and supervisory policies must recognize the dynamic forces at play in the financial sector. Such policies must promote and exploit the competitive process in order to foster efficient delivery of services while encouraging financial and economic stability. These objectives are not likely to be achieved by regulations that arbitrarily identify and rigidly segment bank and nonbank financial markets. Rather, our goal as policymakers should be to establish rules of the game that provide proper incentives for financial institutions to accurately assess and manage the risks inherent in their business decisions. Likewise, we should foster reporting standards and information flows so that the consumers of financial services and products are as well informed as possible about the risks and returns of the financial services and products they buy. To the maximum extent possible, market forces should determine which bundles of financial services and products are provided by banks and other types of financial service providers.

Early in 1996, the Federal Reserve began to have concerns about international progress on the Year 2000. Informal discussions within the Bank for International Settlements (BIS) Committee on Banking Supervision indicated that the Year 2000 was not then a priority in many countries. That has now changed.