MNI: Rosengren Wants Capital Buffer, Rejects Digital Currency

Boston Fed President Eric Rosengren on Friday called for a countercyclical capital buffer and strengthening oversight of money-market funds as ways of making the financial system more resilient, while rejecting calls to embrace digital currencies.

"We should have a counter cyclical capital charge, and we need a less ad hoc approach to these crises," he said. "We need to think more systematically about how we can make sure that credit is available, and not only for the largest institutions but for many of the small and medium sized enterprises as well."

Rosengren, a thought leader in the Fed system who also has a history of focusing on financial stability issues, said cryptocurrencies could be a source of further instability in a future financial crisis. His comments come days after a top BIS official said digital currencies backed by central banks are inevitable.

Repeating past concerns about overheated housing markets, he pointed to a very low interest rate environment adding to risks. "I do worry about froth in markets, and I do worry about individuals assuming that monetary policy is to stay accommodative forever and what that results in is people taking on more risk."

Long an advocate of turning on a CCyB, Rosengren offered some criticism for Fed leaders who have argued the pandemic showed that the bank charge was never needed and have exited the crisis in good form.

"While many of my colleagues talk about using supervisory powers, many of these problems are not necessarily just in the banking sector," he said. "We really need a much more integrated financial regulatory structure and we really want to deal with financial stability, concerns in a systematic way."

Rosengren also indicated support for adopting central clearing of Treasuries but said "it will take quite some time to get to that point" of putting it in place.