Fed's John Williams: "The Global Financial System Is Experiencing Great Stress"

Tyler Durden's picture

Some words of caution from recent Fed addition John Williams of the San Fran Fed:

The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game.  Those new rules are both explicit and implicit.  They call for more capital, reduced leverage, lower risk appetites, more thorough supervision, and stronger regulation, at both the systemic and individual institution levels.  In this environment, open dialog is all the more important as we collectively reach a common understanding of how the new rules should work in practice.

Of course when one hears John Williams, this is the only thing that should come to mind:

Full speech from John Williams

Risk Management and Macroprudential Supervisory Policies (link)

Welcome to the San Francisco Fed and our beautiful city by the Bay.  I want to extend a special greeting to those of you who have come all the way from Asia to join us.  I’m sorry that other commitments kept me from joining you yesterday.  I’m sure though that Mohamed El-Erian’s keynote address set a strong tone for this conference, which is convening at a time of heightened financial uncertainty around the world.

This is the San Francisco Fed’s fifth Asian Banking Conference & Symposium.  These events are designed to encourage conversation and dialog.  Our aim is to provide a forum for a wide range of opinions and to promote the cross-fertilization of ideas by taking advantage of the diversity represented here.  Conference participants include financial professionals, financial institution supervisors, consultants, and academics from the United States and Asia.  The varied views represented here are particularly helpful to those of us in the Federal Reserve System as we weigh supervisory and monetary policy decisions.  Taking part in the debates and discussion at these conferences sharpens our own sense of the issues and helps us make better policy decisions.

These events are also valuable because they provide opportunities for regulators and banking industry leaders to talk in a neutral setting outside the supervisory framework.  In that way, the conference can foster the kind of give-and-take on vital financial and policy issues that can’t be duplicated within the supervisory relationship itself.  The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game.  Those new rules are both explicit and implicit.  They call for more capital, reduced leverage, lower risk appetites, more thorough supervision, and stronger regulation, at both the systemic and individual institution levels.  In this environment, open dialog is all the more important as we collectively reach a common understanding of how the new rules should work in practice.

This year’s symposium focuses on risk management in a financial and regulatory landscape transformed by crisis.  All of us have been busy digesting the lessons of the crisis of 2007–09.  The challenge we now face is to make sure the global financial system is strong enough to weather periods of extreme stress and volatility.  On both the public and private-sector side, we have much work to do to restore confidence in the financial system and reassure the public that financial crises can be contained.

Let me take a few minutes to outline some key supervisory policy challenges related to today’s more robust enhanced prudential supervision standards.  Yesterday you discussed the evolution of regulation in Asia.  Of course, Asia is one of the world’s most rapidly growing financial markets.  Like the United States, it needs regulatory policies that keep up with rapid changes in bank practices and financial markets.

Globally, one of the more contentious areas of regulation concerns new proposed capital requirements aimed at containing systemic financial risk.  The key rules in this area apply to systemically important financial institutions—SIFIs— whose failure could harm the broader economy.  For these institutions, we must set capital requirements high enough to ensure that failure is extremely unlikely while still allowing enough leverage for banks to provide reasonable returns to shareholders.  Another reason for this “SIFI surcharge” is to eliminate the advantage such institutions enjoy in their funding costs by being perceived as too big to fail.  The surcharge makes the playing field between SIFIs and smaller organizations more even.  And it provides disincentives for firms to become extremely large, increasing their systemic footprint.  Nonetheless, setting an appropriate surcharge is a tough balancing act and these standards are sure to provoke pointed discussion on the part of bankers and supervisors alike.

Let’s look at this issue more deeply.  How will SIFI managements adjust their business models in the face of higher capital requirements?  Either expectations will shift regarding appropriate levels of risk and reward, or business practices will change in ways that accommodate the additional capital charge.  For their part, supervisors will have to judge whether such changes are consistent with microprudential standards of safety and soundness for individual institutions and macroprudential standards for containing systemic risk.

Related to these matters is the question of the economic effects of heightened risk management standards and higher capital and liquidity requirements.  Although we have thousands of banking organizations in the United States, the U.S. banking sector is highly concentrated in a small group of large and complex financial institutions.  As a central banker, I am keenly interested in the potential economic impact of regulatory policy and supervisory actions.  Will lower risk tolerance and higher capital and liquidity requirements for SIFIs slow economic growth?  How do we balance any such lost growth against the economic damage of a financial crisis?  We know economic activity is hurt when credit is hard to get.  To what extent will the new rules of the game make credit less available, especially from SIFIs?  Will any possible declines in SIFI lending be offset by financing from other sources?  The Basel Committee on Banking Supervision has concluded that the expected long-term economic impact of stronger capital and liquidity requirements will be relatively small due to the lengthy phase-in period and the continuation of current return-on-equity expectations.1 Still, many variables could potentially alter this outcome, and further analysis is needed to sort out the economic crosscurrents stemming from the forthcoming stricter risk management standards.

Managing systemic financial risk is a challenge of the first order for regulators.  By their very nature, the decisions we make as macroprudential supervisors will be hard to get right.  I have a great deal of confidence in the experience, judgment, and talent of our supervisors.  Nonetheless, systemic supervision is a new endeavor that requires new ways of thinking, new forms of analysis, and new supervisory practices.  We will have to make judgments and take action to head off systemic events that are very difficult to see in advance.  Bank regulators and economists around the world are working hard on this problem and some promising analytical tools are being developed.  For example, regulators are looking at how to determine at what point excess credit flows and relaxed underwriting standards become dangerous.  Still, decisions resulting from this macroprudential supervisory framework will be based in part on preventing future events that are inherently uncertain.  These decisions will probably be met with criticism not only from the industry, but also from political, business, investor, and consumer quarters.  And this process will have effects that won’t be fenced off in a single country.  With today’s interconnected global markets, macroprudential supervisory action in the United States will have repercussions in financial markets around the world.

I’m convinced that timely communication about these policies and practices is critical if we are to get things right.  We must explain to the financial sector and the public in clear language when we believe an unsafe situation is developing and how it could potentially lead to a crisis.  This implies speaking plainly about the economic costs and benefits of macroprudential supervision.  We now know the extraordinary cost of allowing residential real estate underwriting standards to get too loose during the housing boom years.  But the steps taken to tighten lending standards also have a cost.  Some borrowers can’t qualify for loans, which is one of the factors reducing demand for housing and holding down house prices.  It’s important to talk about both sides of the coin—the threat represented by a buildup of systemic risk and the cost of policies and practices that contain that risk.  The challenge is to design a regime of macroprudential supervision that maintains financial stability and maximizes long-term economic growth.

The Federal Reserve is committed to working with other financial supervisory agencies in the new Financial Stability Oversight Council and with the financial industry to make the macroprudential regime successful.  Discussions and dialog at symposiums such as this are part of the process of building a new supervisory approach.  This is a new endeavor and we need you to be actively engaged in thinking, talking, and writing about the issues raised by our efforts to stabilize the financial system.  So, as you take part in the discussions here, know that you are contributing to the development of a better system of supervision.  I am sure that the expertise and talent in this room will contribute to that effort.  I hope you that you find your time here to be informative and stimulating, and I hope that it helps you advance risk management disciplines at your institutions.  Thank you very much.

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TruthInSunshine's picture

San Francisco Fed's John Williams = Captain Obvious, and he's here to save the day, too.

This is why the braniacs at the Federal Reserve get paid the big bucks (and ultimately migrate to corner offices at Goldman & JPM's Headquarters when their 'public service' is done).

CrashisOptimistic's picture

Odds are pretty high he was paid a speaking fee for this drivel.


Herd Redirection Committee's picture

No doubt.  Gotta love this crap about 'SIFI' systematically important financial institutions, meaning 'the status quo', and 'don't try to change anything or we will be forced to deal with you most unpleasantly".

Come on, what we need is a Great Reset.  For all these banks and billionaires to be wiped out, and we start from scratch, using sound money.  Jubilee 2016, here we come!

BTW, check out the latest from the Capital Research Institute "BiMetallic Standard, FAQ":


"Here at the CRI we have been calling for a return to ‘sound money’. What does that mean? What does it entail? What does CRI think this would accomplish, exactly?

First, it is crucial to understand, as more and more people are everyday, that our current money system is dishonest and crooked. We are talking about the fiat fractional reserve system, whereby new money comes into existence when banks extend credit (out of thin air). Fiat can only be exchanged for more fiat (unbacked).
The major differences, then, under a sound money system would be in terms of where NEW money comes from. Currently private banks get to decide when new money should be created, and hence, business conditions for THOSE private banks will determine the money environment FOR EVERYBODY. This is the current situation, where banks are so illiquid and insolvent that they plainly refuse to extend credit on reasonable terms. This results in a feedback loop such as the world experienced in 2008 (when credit dried up) as well as what we are experiencing currently.

Under a gold/silver BiMetallic Standard the price of gold and silver would both be fixed..."

AldousHuxley's picture

"Great Stress" = "No Money"


When cops go to the Fed to ask Bernanke the superman for more money: http://www.youtube.com/watch?v=JRzifyG7G9E&feature=related

Pituary Retard's picture

Read the headline too fast. Thought it was insight from John Williams of Shadow Stats.


TruthInSunshine's picture




***Breaking News Alert***


San Francisco Fed's John Williams urges parents not to let toddlers place plastic bags over their heads for extended periods of time.


***This Has Been A Breaking News Alert***

Oh regional Indian's picture

Notice all the Fed poodles are making end of world speeches. poole yesterday, Williams today, Brrrrrrrnanke Panky just the udder day.

I think we can all count on a crash filled week coming up. And a rumor filled wek-end.  No weekend for Zh, gotta stay on the ball.

Memes for the Imemine crowd, the end is nigh. Don't cry, baby, the Beard will save us all.


YUCK, only in America?

PY-129-20's picture

That Austrian lady killed the ending - ORF! But the Imperial March was a good selection, Tyler.

TruthInSunshine's picture

In other news, The Bernank is blaming consumers for the shitty economy (from the truly WTF files):

WASHINGTON —Ben S. Bernanke, the Federal Reserve chairman, offered a new twist on a familiar subject Thursday, revisiting the question of why growth continues to fall short of hopes and expectations:

Fed Chief Describes Consumers as Too Bleak


You really can't make this shit up. It's just...not.....possible.

I wonder if The Bernank has a working theory of econometric model hazarding a guess as to why consumers are "bleak"? Maybe he could plug 18.7% U6 unemployment, depression level housing values and record number of underwater mortgages, trillions of taxpayer extracted monies literally given to Wall Street/Banks, 20% to 50% household wealth destruction, 11% rate of real inflation, surging tax/permit/license fees and rates that are growing like crazy, prolific government deficits and a growing national debt, crashing currencies, etc. etc. into a model and come up with a theory.

RSloane's picture

I cannot understand how someone this moronic is the Fed chair. I just don't get it. Surely he has to leave his ivory tower once in awhile to buy some milk and butter thusly mingling with said bleak population. Did he ever ask once why they were so bleak?

Jeremy Roenick's picture

If by "great stress" he means with a loaded gun, chambered round pointed at one's head.... Then yes, great stress...



Idiocracy's picture

Yes, don't you just love the term "public service" as self-applied by uber bureaucrats and politicians?  No doubt Attila the Hun congratulated himself for his widspread public service as he smoked his pipe in genteel retirement

GeneMarchbanks's picture

Great stuff. The other John Williams would be proud. This "Bizarro" John Williams is an academic ponce.

Shadowstats rules!

Irish66's picture

the decisions we make as macroprudential supervisors will be hard to get right

caerus's picture

they should play that when the bernank appears before congress

doomandbloom's picture

"This is the end...
Beautiful friend..
This is the end..
My only friend, the end
Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
I'll never look into your eyes...again..."

Clorox Cowboy's picture


"The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game.  Those new rules are both explicit and implicit.  They call for more capital, reduced leverage, lower risk appetites, more thorough supervision, and stronger regulation, at both the systemic and individual institution level"


I'm sorry, but which game is he talking about...??  I'm not aware of anything financial with rules like that.


Poetic injustice's picture

He is talking about small and medium businesses. Regulating them 10x more will save economy and revive American miracle.

j0nx's picture

Duh. Another ivy leaguer here to tell us what we have known for 4 years now. Where would we be without these geniuses..

Robslob's picture

So have we gone from Hopium to Stressium?

dick cheneys ghost's picture



dont tell that to the whores in washington..........

Cdad's picture

News flash...BlowHorn [CNBC]...Why Are We Falling?....

"We were expecting clarity out of the Obama speech [lol], but things are now even more unclear."  Gordon Charlop  Who is anyone, including Gordo, kidding with this crap?  

MORE FUCKING PINK SLIPS IN THE BANKER ZONE!  NOW!  Not next quarter, not next year....NOW!  Capital will not form under the leadership of this sick assed group of group think, HFT scalping, lying, morally challenged people.  If Gordo actually believes what he just said, he should be offered early retirement.

The S&P is not even worth 900...not with this crew at the helm.  In fact its true value is absolutely zero until integrity is restored.  And that means these folks have to go.


Cdad's picture

J. Najarian throws his cred on the same funeral pyre...talkiing about the same high expectations for the Obama speech, and then announcing he has no long positions...this after he just argued for a higher market and a lower VIX LAST NIGHT...and is now offering his S&P put spread...for sale.

All of them...need to go.  Zero cred actors, zero cred BlowHorn network, zero cred computer manipulated market.  There is nothing left here for capital to invest in.  Turn out the lights at the NYSE...you know, after asking Germany's permission.  

Sancho Ponzi's picture

The problem with the Central Bankers is that sooner or later you run out of other peoples' liquidity.

MsCreant's picture

The challenge is to design a regime of macroprudential supervision that maintains financial stability and maximizes long-term economic growth.

What would happen if we didn't do this? Hmmm?

What if we dumped the whole thing? Would we be any worse off than we are now?


Robslob's picture

No "we" wouldn't but "they" would be...

MsCreant's picture

Robslob, "we" let "them" decide for us. It can be no other way.

We were born into it. I was told this is just the way it is. You probably were too. Each of us has decided to question how and why this is happening. But every time we participate in the system without the goal of dismantling it, we comply.

But your point is delicious and stands, "they" would not be okay.

slewie the pi-rat's picture

ya think we hava choice?  i sure hope so, msC/Z!  as one "insignificant" peon at a time gets tf outa "dodge" and stays out

otherwiZe, the Council on Foreign Relations will just keep "winning" by establishing so much chaos, confusion, poverty, illness, and death, that the hypnotiZed will demand rockefeller et. al,'s NWO to become the legal fascist owners of the whole damned plantation

MsCreant's picture

It sounds so paranoid, but what is an SDR? What are these regulations they speak of? Crash it hard and we beg them to rebuild it better, stronger, faster, more centralized. It will be a lean mean stealing machine, baby.

What needs to happen is for everything to become more localized. It will save resources and make all the decisions about the environment, regulations, etc., personal rather than one size fits all and/or depersonalized. Nature abhors centralized systems, they are too fragile. She likes redundancies and small, intricate, interconnected parts that flow together. Destroy one part and you do not take down the whole system in nature. Destroy one part and apparently you can take out most of the economy.

I am afraid we/they will have to make the mistake to learn the lesson.

Bicycle Repairman's picture

"What needs to happen is for everything to become more localized."

It will reduce the too powerful.  It will make the opaque more transparent.  It will increase accountability. 

Never mind the "ism", just decentralize.

TruthInSunshine's picture

I'm waiting for The Bernank to step in and start buying NFLX, PCLN & LULU, because it's critically important for the health and welfare of the bulk of the American Population, whether employed or (increasingly likely) unemployed/underemployed, that The Bernank Virtuous Circle™ Econometric Model be given full support.

NuYawkFrankie's picture

Re: "The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game...."

POST CRISIS?  Uuughhh?

Must be the FEDs way of saying that we have gone from the CRITICAL stage - to the TERMINAL stage.

Hephasteus's picture

No. The rules of the game are not reduced risk.

IBM, Amazon, HP, AMD and everybody else are charging forward with cloud when people are telling them to go get stuffed.

Phones are tracking, spying when people are telling them go get stuffed.

Credit is shut off because nothing the centralized planners do not want is going to get any attention or resources.

This is end of empire risk levels with no path forward.

Idiocracy's picture

Bill, please don't show us your O face, nnnn'kay?

Bill Lumbergh's picture

You know I save that just for Joanna.

caerus's picture

jim rogers on cnbs

Irish66's picture

He is right.  I wish they would let him keep talking

The Count's picture



ON another note.... look at this link.... http://consultingbyrpm.com/wp-content/uploads/2011/09/ron-paul-gets-it-a...

Don't you just LOVE how the mainstream media is using every dirty trick in the book to make sure Ron Paul gets no traction? Look at his bar compared to Romney.....

MsCreant's picture

I am not sold on Ron Paul but that is so blatant it is criminal enterprise. Ron Paul's people need to be suing someone. Holy hell, Count. They are not journalists, they are criminal clowns.

Abiotic Oil's picture

When the same people that own the banks own the media and someone comes along who endangers their counterfeiting operation...

Operation Mockingbird Bitchez!

iDealMeat's picture


Who is Ron Paul?





@ MsCreant, I'm not necessarily sold on him either because of his pro-life views. But, MSM and the establishment can stand him..  So I'd vote for him.. If I even bother voting this time. 

PulauHantu29's picture

How long do you think it would take the median household to save $231,000?



PulauHantu29's picture

Amazing Stats. Why doesn't the Gubberment encourage people to save more instead of cheering thejm on to spend and take on more debt?

TruthInSunshine's picture

Because the Ponzi that is any economy built upon the foundation of fractional reserve banking practices depends on debt issuance, at an exponentional (truly exponential, and not just figure of speech or rough use of language) increase, for its very survival.

When debt issuance, whether due to reluctance to loan fiat or reluctance to borrow fiat, stops growing at an exponential rate, the system has already begun its process of collapse.

Segestan's picture

Step one..... Stop out sourcing American jobs, close the borders. All the rest of the  problems will subside in due time.


PS... throw the Fuckin UN out!!!