Stanley Fischer: An assessment of financial stability in the United States

Speech by Mr Stanley Fischer, Vice Chair of the Board of Governors of the Federal Reserve System, at the IMF Workshop on "Financial Surveillance and Communication: Best Practices from Latin America, the Caribbean, and Advanced Economies", Washington DC, 27 June 2017.

In the years since the start of the global financial crisis, an enormous amount of effort has gone into ensuring that we have a robust financial system that promotes responsible risk taking and an efficient allocation of resources. But despite these efforts, financial stability cannot be taken for granted, for financial decisions that benefit the people who make them can create systemic risk and harm society as a whole. Further, the phenomenon familiar from macroeconomics - and for that matter from life - of decisions that result in short - run happiness and long-run grief is visible also in the area of financial stability. For example, excessive leverage and reliance on short-term funding, which may reward risk takers whose bets pay off, may also increase the risk of fire sales and contagion, creating a fragile financial situation. The disruption in credit intermediation that typically accompanies such episodes can have lasting negative consequences for the real economy and welfare-some of which we are still seeing today. The Federal Reserve's financial stability responsibilities therefore strongly complement its dual-mandate objectives of achieving price stability and full employment.