Tuesday, April 16, 2024
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Microsoft unveils integrated Copilot AI chatbot, says it can aid with financial tasks

Cleveland Fed President Loretta Mester said on Thursday that she supports requiring banks to have in place legal agreements and collateral that will allow them to quickly use the Federal Reserve’s discount window in times of stress.That’s to make sure that banks are prepared to borrow from the Fed when needed to tide them over during liquidity crunches.
“It is also worth considering requiring banks to pre-position collateral at the window in proportion to their short-term runnable funding, including uninsured deposits, so they would be ready to borrow at the discount window should that funding start to run,” she said in a speech made almost a year after regional bank stress led to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank.
She suggests that such a requirement be applied in a tiered approach, because banks that rely less on “runnable funds” pose fewer risks. “And it would provide some incentive for those banks that find the constraint binding to adjust to a lower-risk funding structure.”
Mester also sees the need to increase banks’ countercyclical capital buffer during periods of high credit growth, “which often coincides with the accumulation of system-wide risk.”
Her suggestions are intended to create a more resilient financial system, which will also help with the Federal Reserve’s execution of monetary policy. A resilient financial system “limits the times during which monetary policy and financial stability goals come into conflict, so that monetary policy is not disrupted by financial system stress and can continue to transmit to the broader economy,” she said.
The goal of regulation and supervision can’t be to eliminate all volatility in markets or to prevent all bank failures. “Instead, the goal should be to limit tail and systemic risks so that the financial system absorbs shocks rather than amplifies them, and so that the system can recover quickly and continue to provide its services across the business and financial cycles.”
Regulation and supervision can increase financial system resilience by lowering the probability that a shock will become systemic and by reducing the costs put on the rest of the economy when a shock rattles the financial system.



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