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Originally published Thursday, May 1, 2014 at 6:36 AM

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Yellen says Fed seeks to avoid undue regulations

As the Federal Reserve works to ensure that the nation's largest banks pose no undue threats to the financial system, it will avoid imposing unnecessary rules on small banks, Fed Chair Janet Yellen said Thursday.


AP Economics Writer

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WASHINGTON —

As the Federal Reserve works to ensure that the nation's largest banks pose no undue threats to the financial system, it will avoid imposing unnecessary rules on small banks, Fed Chair Janet Yellen said Thursday.

In a speech to community bankers, Yellen said the Fed will consider any harmful effects that new regulations would have on smaller institutions.

"We are taking a fresh look at how we supervise community banks and possible ways that supervision can be smarter, more nimble and more effective," the Fed chair said in remarks to a policy conference sponsored by the Independent Community Bankers of America.

Yellen said one area the Fed is examining is how to defuse threats resulting from some big banks' over-reliance on short-term funding. She said it's too early to say whether or how the Fed would address those risks.

She noted that few community banks rely on the types of short-term funding that could pose threats.

Yellen has indicated that current regulations might not be enough to prevent the types of risk-taking that triggered the 2008 financial crisis. In a speech last month, she said the Fed was considering whether rules need to be strengthened to ensure that non-banks such as money market mutual funds don't engage in risky activities.

In her comments Thursday, Yellen said conditions at smaller banks had strengthened in the years since the financial crisis.

"Asset quality and capital ratios continue to improve, and the number of problem banks continues to decline," Yellen said. "After several years of reduced lending following the recession, we are starting to see slow but steady loan growth at community banks."

Yellen said she viewed the loan growth as an encouraging sign that the economy was improving.



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