When a financial system becomes impaired, there can be dire consequences for economic activity and the ability of central banks to achieve their macroeconomic objectives. Hélène’s work highlights an important global dimension to financial cycles, showing that gross capital flows, asset prices and credit often move in a synchronized way across countries as perceptions of risk change. As we now know all too well, the global financial crisis dramatically underscored the fact that instability in the U.S. financial system and those of other advanced economies imposed extraordinarily high costs on the entire global economy. Making the global financial system more resilient and less procyclical has been a key focus of policymakers since the financial crisis, and most countries have made substantial progress on this front. This is evident in stronger capital and liquidity buffers for banks, lower reliance on wholesale short-term funding, reforms of over-the-counter derivatives markets, and the development of resolution and recovery regimes for banks and key financial market infrastructures, among other efforts. Nonetheless, we must continue to work on these issues. In particular, the U.S. financial system—the epicenter of the crisis—has been considerably strengthened. Here, I would highlight additional reforms such as the Comprehensive Capital Analysis and Review (CCAR) regime, which imposes annual capital stress tests on systemically important banks; tri-party repo reform; and money market mutual fund reform. Policymakers globally have also made good progress on strengthening supervisory oversight, and are making headway—albeit more slowly—in developing effective macroprudential frameworks and toolkits. But, more work remains to be done in several areas.

William C Dudley: Panel remarks at the Bank for International Settlements' Annual General Meeting Panel remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank for International Settlements' Annual General Meeting, Basel, 25 June 2017. * * * John Clark, Gerard Dages, Linda Goldberg, Eric LeSueur, Jonathan McCarthy, and Joseph Tracy assisted in preparing these remarks. Let me start by thanking Jens Weidmann and the Bank for International Settlements for the opportunity to respond and comment on Professor Hélène Rey’s thoughtful remarks and on the issue of international spillovers associated with U.S. monetary policy. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1 As is characteristic of her work, what Hélène has to say is well-argued and provocative. It is also very relevant to the conduct of monetary policy and the functioning of the international monetary system. I mostly agree with the major points she makes. First, I wholeheartedly agree with her on the hazards of financial booms. Rapid increases in credit and capital flows, asset prices, and leverage can lead to potentially severe corrections that can impose great stress on financial systems. As we have seen repeatedly, this stress can impair the ability of the financial system to perform well in intermediating credit between savers and borrowers, and in helping households and businesses manage their financial risks.