Such risk aversion on the part of economic agents would lead to at least temporary declines in asset prices and widening of credit spreads, for both corporations and emerging markets. Although these effects are likely to be temporary, asset price declines could put the balance sheets of some financial institutions under stress and they may face challenges in meeting regulatory norms.
Risk Measurement and Management and the Implications for Supervisory Policy In the final section of my remarks to you five years ago, I emphasized the need for the Federal Reserve to continually improve the bank supervisory process to ensure that banks adequately manage the risks that could be introduced into the financial system by changes occurring in the financial sector.