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Ensuring Stability in an Age of Globalized Finance

Challenges Facing the Global Financial System

Speaker: Christine M. Cumming, First Vice President and Chief Operating Officer, Federal Reserve Bank of New York
Presider: Andrés Rozental, Founder, Mexican Council on Foreign Relations
May 13, 2014

Event Description

Christine Cumming of the New York Fed joins Andrés Rozental from the Mexican Council on Foreign Relations to discuss current economic trends and the role of the Fed in the financial regulatory system. Cumming expresses her concern that the financial system is failing in its mission to efficiently allocate capital to the most productive investment opportunities. She is optimistic about future growth prospects in the United States and explains why the current gradual approach to the tapering of monetary stimulus is appropriate.

The Council of Councils, an initiative of CFR, is composed of twenty-four major policy institutes from many of the world's most influential countries. It is designed to facilitate candid dialogue among opinion leaders from both developed and emerging nations, with the ultimate objective of introducing the conclusions of its deliberations to high-level foreign policy circles within each country. This session with Christine Cumming is part of a two-day conference hosted annually by CFR which brings members of the Council of Councils together for a series of discussions on various topics.

Event Highlights

Christine Cumming on the economic outlook in the United States:

"When you look at some of the key economic sectors, it is hard not to be optimistic. So, take for example, the household sector. The household sector, as you know, accumulated an enormous amount of debt in the run up to the financial crisis, mostly mortgage debt but other kinds of debt as well, and households have brought back their debt to income ratio—the debt service to income ratio, I should say, down to levels that are, you know, comparable to the early 80s. A really dramatic shift in their financial position."

Christine Cumming on the role that the financial system plays in allocating capital for productive use:

"I think this is one of the disappointments of financial intermediation and the way the financial system has evolved, look at even at your agenda over this day and a half. And the tremendous opportunities—the tremendous challenges, but also opportunities, that are there. The investments that we need to deal with climate change. The rise in the standard of living in emerging markets and even now, potentially, in the African continent and places like that, tremendous opportunities that need to be financed. They involve risk. They involve the commitment of capital, the willingness to lose some money. But, tremendous opportunities ahead of us, and that's what the financial system should be doing."

Christine Cumming on the likely future direction of monetary policy in the United States, Japan, and Europe:

"And so, you might look at the monetary policies in all three countries and really say that the focus is appropriate right now. That in all three places we're not performing as well as we could be, and that we want to get out of this, get the recovery started. But then be wary for the risk of inflation, because of course, we've laid out a lot of liquidity in these major countries in the last few years. And therefore, you know, eventually that's got to be drawn back in to get to a more normalized stance."

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