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08 December 2008

Fed Kroszner – Financial products need to become simpler


Products traded in financial markets have to become simpler, standardized and more transparent, Krozner said and also called for higher liquidity and capital buffers held by banks.

“A recovery in the market for mortgage-backed securities will require greater transparency and less complexity, and importantly, comprehensive and standardized loan-level data that will allow more independent credit analysis”, Federal Reserve Governor Randall Kroszner said. “I expect that the aftermath of the present turmoil will see both innovation and incremental refinement to quality assurance in credit markets and in counterparty credit risk management”.  

 

For effective quality assurance some of the products traded in financial markets have to become simpler and more transparent, Krozner said. Also, counterparty credit risk management should be focused on its effectiveness in different market situations and its implications for financial stability, he said.

 

Kroszner also called for higher liquidity and capital buffers held by banks as additional protection against "future market distress that could cause correlated and cascading losses among market participants”.

 

Full speech

 



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