Fed's Fischer: Real estate needs more crisis buffers

Economy 6/20/2017, 11:59 AM
Fed's Fischer: Real estate needs more crisis buffers

While acknowledging the link between imbalances in the real estate sector and the eruption of financial crises, the vice chairman of the Federal Reserve insists the financial system in the United States is stronger than before the crisis. Speaking in Amsterdam on Tuesday, Stanley Fischer did express the view the system needs more resilience.

"In addition to its role in financial stability, or instability, housing is also a sector that draws on and faces heavy government intervention, even in economies that generally rely on market mechanisms. Coming out of the financial crisis, many jurisdictions are undergoing housing finance reforms, and enacting policies to prevent the next crisis," the policymaker said. Fischer stressed the significance of the involvement of governments in the sector, particularly guarantees of mortgage-related assets, but also in securitization through public as well as private vehicles.

The top US rate-setter went on to highlight the need for a capital regime robust enough to immediately handle intermediation in the case of a crisis, paired with sufficient capitalization in banks. Furthermore, rules and expectations are supposed to promote "efficient modifications" in case of severe stress, Fischer stated. "Modifying loans rather than foreclosing on them, including measures such as reducing the principal balance of a loan or changing the loan terms, can allow borrowers to stay in their homes. In addition, it can substantially reduce the dead-weight costs of foreclosure," he underscored.

TeleTrader Newsroom / IT

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