The remedial legislative response to the financial crisis in the United States was the DoddFrank Act.7 While the Federal Reserve Act did not use the words “financial stability”, this was not the case with the Dodd-Frank Act. Instead of being observed in the penumbra, financial stability is an open and obvious topic of the new law. Title 1 of the Dodd-Frank Act is named the “Financial Stability Act of 2010.” One of Title 1’s most consequential provisions is Section 165, which empowers the Board of Governors to develop enhanced prudential standards for systemically important financial institutions.8 In a provision directly affecting central bank powers, the Congress instructs the Federal Reserve to develop prudential standards “to prevent or mitigate risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large interconnected financial institutions.”9 There are other provisions of the Dodd-Frank Act granting new powers to the Federal Reserve with respect to financial stability, and time does not permit me to review all of them here.
The global financial crisis has tested both the ECB and the organization that I am privileged to serve, the Federal Reserve. The Federal Reserve’s financial stability role, my topic for today, was at the center of the response to the crisis in the United States. Because this was the worst financial crisis in the United States since our Great Depression, conditions within our national economy produced instability, which naturally provoked a reaction from the Federal Reserve. From my personal perspective, one of the most inspiring moments was when Chairman Bernanke spoke in February of 2009 at the National Press Club. There, he said “the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity . . . .”1 No statement encapsulated the financial stability objective as succinctly and as clearly. In speaking here at the ECB, I would be remiss if I did not mention a substantially similar statement by ECB President Mario Draghi in July of 2012. President Draghi said that “[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro”.2 Whenever I have referenced President Draghi’s “whatever it takes” statement, Antonio is quick to note that President Draghi, unlike Chairman Bernanke, appended a forecast to his version of “whatever it takes”. He assured everyone that “it will be enough”.