NEW YORK--Federal Reserve Chairwoman Janet Yellen said some of
Europe's economic challenges spring from the still-unfinished work
of strengthening its banking sector after the 2008 financial
crisis.
"Europe is being held back by adjustments in their banking
sector and problems in the banking sector," Ms. Yellen said during
a question-and-answer-session following a speech to the Economic
Club of New York. "I think we have a much stronger banking sector
in the U.S."
Europe has drawn criticism from economists for failing to do
more to beef up its banks' capital cushions against losses and
clean up their balance sheets, whereas the U.S. took a more
aggressive tack in recapitalizing its banks, starting with the 2009
stress tests conducted by the Fed.
Ms. Yellen touted the work U.S. regulators have done to
strengthen the financial system and to reduce the risk that large
financial institutions will collapse under stress. "I do believe
that we are making very meaningful progress in that task. There's
much more and higher quality capital and more liquidity in the U.S.
banking system. We have raised capital standards very
meaningfully," particularly for those firms that pose the biggest
threat to the financial system, Ms. Yellen said. She added that
"there may be some further changes that we will put into effect to
raise capital standards for larger firms," an issue she addressed
in remarks Tuesday.
She said U.S. banks generally "are well on the track to meeting
those higher capital standards." Moreover, she added, her view is
that U.S. banks "look to lend they want to provide credit and they
are supporting the recovery."
She said Europe has made "meaningful progress" in trying to form
a banking union that would help the regional economy. European
regulators are working with the Fed to improve capital standards
and a "level playing field," Ms. Yellen said.
"Their economy however is somewhat more constrained by the need
of banking organizations to build capital," Ms. Yellen said.
Write to Victoria McGrane at victoria.mcgrane@wsj.com
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