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Monday, December 23, 2013

The Federal Reserve Was Created 100 Years Ago. This Is How It Happened

Adapted from “The Alchemists: Three Central Bankers and a World on Fire,” by Neil Irwin. Irwin, a Washington Post columnist and economics editor of Wonkblog, was the Post’s beat reporter covering the Federal Reserve and other central banks from 2007 to 2012. The book, including this excerpt, is based on reporting that took place in 27 cities in 11 countries. It tells of how the central bankers came to exert vast power over the global economy, from their 17th century beginnings to the present, and tells the inside story of how they wielded that power from 2007 on as they fought a global financial crisis. Excerpted by permission of The Penguin Press, a member of the Penguin Group (USA), © Neil Irwin.
Neil Irwin in The Washington Post

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When the Volcker rule gets real. "For the biggest banks compliance is especially important because the measure requires that chief executives attest in writing that their company has "reasonably designed" processes in place to achieve compliance...There are six parts to compliance, including writing policies and procedures to follow the rule, establishing internal controls, setting up management in a way that makes responsibility and accountability clear, independent testing and auditing, training and record keeping. Many of these factors contain the "reasonably designed" language." Gina Chon in The Financial Times.

Those Fed regulators are toughening up. "The Federal Reserve clamped down on bank moves to evade tougher capital rules on Friday, warning that transactions intended to reduce risk would be closely scrutinised during annual stress tests on bank balance sheets...Some of these regulatory capital trades, which typically involve insurance offered by a third-party, are legitimate while others are evasion, the Fed indicated. If the risks are shifted to a "thinly capitalised counterparty or affiliated entity of the firm, any residual risk is effectively captured in the firm's internal capital adequacy assessment", the agency said in its guidance note to large banks." Gina Chon and Tom Braithwaite in The Financial Times



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