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“The period of extreme stress seems to have abated, and financial markets are showing some tentative signs of revival”, Governor Frederic Mishkin said. However, it will take a substantial amount of time to complete the cleanup of the financial mess and to get the financial system fully back on its feet.
However, significant strains persist, he said. “Banks are tightening their lending standards, and conditions could worsen again should the economic outlook deteriorate further.”
Recent data suggest that the U.S. economy has proved more resilient than some had anticipated, he said. But he also warned that if the Central Banks had not stepped in to provide liquidity, the consequences for the real economy very likely would have been quite severe.
“We expect to strengthen the financial system with an array of regulatory changes, which includes strengthening of capital and liquidity rules, more disclosure requirements, closer supervision of the measurement and management of firm-wide risks, and steps to increase the transparency and resilience of the financial infrastructure”, Governor Mishkin concluded.