Speaking at a credit conference in Charlotte, North Carolina on Friday, Boston Fed President Eric Rosengren addressed the current housing price slump in the U.S., saying that it may continue affecting even more banks.
In a panel discussion with Richmond Fed President Jeffrey Lacker, Rosengren pointed to a lack of an additional buffer to banks' capital and at cutting dividends as a mean to deal with the crisis. Turning his attention to liquidity and the role of central banks, he said that times have called for a period of reevaluation.
"For a central bank to play an effective role during financial turmoil, it needs to understand the sources of liquidity problems, the interrelationships between market participants, likely losses, and market participants' potential reactions to these losses," he said.
Rosengren went on to say that the Federal Reserve needs to take on a more hands-on approach to supervising financial institutions.
"In sum... we can take appropriate actions to reduce the likelihood that extended periods of illiquidity will occur in the future," he said.
Rosengren offered no comment on current monetary policy and economic outlook in the U.S.
By Ryan Szporer and edited by Nancy Girgis