REPEAT:MNI INTERVIEW:Fed Lacks Macroprudential Tools;Rosengren

Repeats Story Initially Transmitted at 04:01 GMT Sep 10/00:01 EST Sep 10

By Sara Haire

     BOSTON (MNI) - A lack of tools to mitigate financial system risk may hamper

the Fed's ability to combat a future economic downturn, Boston Federal Reserve

Bank President Eric Rosengren told MNI in an exclusive interview Saturday.

     While other countries have since the collapse of Lehman Brothers moved

towards allowing their central banks to use so-called macroprudential

regulation, we "never had that discussion in the U.S.", he said, adding that

there has "been a reluctance to give the central bank or anybody that power."

     This could be a handicap if interest rates were to hit zero, Rosengren

said, adding that the Fed's macroprudential toolkit was largely limited to the

countercyclical buffer. Established under Basel III international post-crisis

banking regulations, the rule allows banks to be required to put aside a higher

proportion of capital to their risk-weighted assets, in case a downturn pushes

up defaults.

     The Bank of England raised its counter-cyclical buffer from zero to 0.5%

last year, and the Banque de France imposed a 0.25% buffer in June, but the Fed

has kept the U.S. buffer at zero.

     Rosengren and Fed Governor Lael Brainard have called for an increase in

capital requirements while financial markets are showing signs of excess and the

economy remains strong. Rosengren said Saturday he would like to raise "all

buffers" if it were possible.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com