MBS RECAP: 9/9/2011


(Reuters) – Global regulators must balance the need to crack down on risky practices that could set off another financial crisis against the imperative of economic growth, a U.S. central banker said on Friday.

Just as lax rules on lending helped fuel a housing bubble that then burst with disastrous consequences, overly strict rules might prolong the economic doldrums, San Francisco Federal Reserve Bank President John Williams suggested in remarks prepared for delivery at a San Francisco Fed symposium on Asian banking.

“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,” Williams said in the text of the remarks, made available by email in Chicago. “The challenge is to design a regime of macroprudential supervision that maintains financial stability and maximizes long-term economic growth.”

A legislative overhaul after the 2007-2009 crisis gave the Fed new powers to oversee systemically important financial institutions, the rules for which are still being written.

Those rules could have important economic consequences, Williams cautioned, including possibly restricting credit and therefore economic growth.

Williams did not comment on monetary policy or the economic outlook in his prepared remarks

(Reporting by Ann Saphir, Editing by Chizu Nomiyama)

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