Fed will need 'resolve' in next crisis: Stein

WASHINGTON (19/10) - MarketWatch - The Federal Reserve must develop 'institutional resolve ' if it plans to use regulation to try to avoid the next financial crisis because banks are likely to push back 'forcefully,' said Fed Gov. Jeremy Stein on Friday.

In a speech in Boston, Stein noted that that the first tremors of the financial crisis started in August 2007, one year before the collapse of Lehman Brothers.

During the interval, the largest U.S. banks paid out almost $125 billion in cash to shareholders via common dividends and share repurchases, while raising only $41 billion in new common equity.

These banks would eventually go on to write down $375 billion of loans over the next 3 years.

If the Fed tells a bank in the next crisis that it needs to improve its capital position, the bank management will prefer to do so by reducing assets rather than by engaging in a dilutive share issue, and is likely to make its case in the strongest terms possible, Stein said.

'It will be incumbent on us as regulators to do all that we can to develop both the intellectual case, and the institutional resolve, to be able to push back with equal force when the time comes,' Stein said.

http://www.marketwatch.com/story/fed-will-need-resolve-in-next-crisis-stein-2013-10-18