Jerome Powell Quotes

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

Most of the time, your risk management works. With a systemic event such as the recent shocks following the collapse of Lehman Brothers, obviously the risk-management system of any one bank appears, after the fact, to be incomplete. We ended up where banks couldn't liquidate their risk, and the system tended to freeze up.

As long as there is cash, and the economy is running, all is well. But as a bank, we'll have to test, experiment, try a hundred different things. A few may work, a few may fail, but we have to experiment and try.

I've been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.

If you don't have ample liquidity, and it's not durable, in times of stress, as you're looking for liquidity, you're forced to sell assets at declining prices, which then eats into your capital position, so it becomes this very, very negative cycle. There's no question that liquidity is sacrosanct.

I do believe that banks are special - they are very leveraged institutions by nature; therefore, it's even more critical to ensure that the governance and the process of running a banking company are well-organised, managed and regulated.

Do we have to regulate derivatives? Yes, we do. 'Cause when I did this in my investments, frankly, no one knew who could pay who. But derivatives have an important place in our economy.

No enterprise, small or large, public or private, can remain self-governing, let alone successful, so deeply in hock to others as we are about to be.

Every morning when I pick up the newspaper and read about an earthquake in Japan or problems in European financial institutions, the first question I ask our staff is 'What is money-market-fund exposure?'

I was able to use credit default swaps to protect not only my investments but the hundreds of jobs that exist because of my investment. I understand the dangers of credit default swaps and the benefits of credit default swaps.

The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.

And so it can be very much in the interest of bank A to sell-short bank B shares, or buy CDSes on bank B, because they have exposure to bank B. It's the responsible thing to do as a fiduciary, and yet if everyone does it at the same time, it's destabilizing because everyone is selling.

If Freddie Mac is unable to raise capital, it could spark a political and financial crisis.

With weak balance sheets, banks tend to continue lending unprofitable businesses and leave them existing.

The Central Bank should have a permanent window for discounting high quality securities where banks could go and discount these. It gives peace of mind to the banks. In the absence of this facility, what banks tend to do is to keep a liquidity cushion for emergency requirements. This is a very expensive way of managing liquidity.

If you think too-big-to-fail banks are not worthy of investment because of their impossible-to-read balance sheets, well then, don't buy them.

Everyone is exposed to economic risks of some kind.

... trade in derivatives poses a mega-catastrophic risk ... derivatives are financial weapons of mass destruction that could harm not only their buyers and sellers, but the whole economic system.

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

Banks are employing risky derivatives strategies to goose up returns….the interbank market could freeze up, and one could well have a full blown financial crisis.

Unregulated derivatives like credit default swaps threaten our regulated markets, or indeed our economy without any Federal agency knowing about it.

One of the most important causes of economic crises is “running liabilities”, or short term debt that the government does not insure. The U. S. financial sector holds trillions of dollars of such debt, including uninsured bank deposits and the short-term liabilities of other financial institutions, such as overnight loans…. Amongst the potential causes of the next crisis, the massive amount of short-term debt ranks as the most probable.

Complexity and interconnectedness matter as much as size in assessing risk in banking.

A financial institution has the task of taking risks, and if it's a well run institution - say, Goldman Sachs - it tries to cover the potential losses to itself, but only to itself.