The Federal Reserve is taking a major step toward its goal of a “federal-run” economy by issuing guidance that would limit banks’ ability to engage in speculative activities and limit the extent to which they can raise capital.
The Fed said Monday it plans to issue an annual report that will help policymakers better understand how the economy is performing and how best to respond to economic and financial challenges.
The report will help policy makers understand the nature of risk and how it can be mitigated.
“This report will serve as the most comprehensive view of the financial health of the economy, and will be used as a guide for future decisions,” Fed Chairwoman Janet Yellen said in a statement.
The statement comes as Fed officials consider the potential impact of the government’s new emergency lending programs, which will require banks to seek emergency liquidity to cover shortfalls in their assets.
The new programs, known as emergency lending, are designed to help struggling homeowners with home repairs and emergency financial assistance.
But the Fed has also said that the programs, unlike other federal aid programs, will be “limited in scope.”
The Fed has said the new programs could be used to help homeowners who have suffered foreclosure, but that it could not be used for short-term emergency relief, including for people who have had health problems.
The Federal Deposit Insurance Corp., which regulates banks, is also concerned about the programs and the possible impact on the financial system.
Yellen has repeatedly said that she has not yet seen the report, and the Fed will not release it until late next week.
“The Federal Reserve will not be releasing this report until we have completed a review of the effects of the emergency lending program,” the Fed said in its statement.
“We will review the impact of these programs on the economy in light of our recent actions and our views on their future direction.
We will take appropriate action to mitigate the risks associated with these programs.”
The report is expected to focus on the role of banking institutions in the economy and the role they play in economic activity, particularly in the housing market.
“Banking has played an important role in the U.S. economy and helped create a stable financial system,” Yellen told reporters on a conference call Monday.
“And we want to make sure that banks are able to do that responsibly and that they’re able to keep lending to consumers and to small businesses.”
Yellen added that the Fed had been careful to not impose undue constraints on banks.
“It has not been our intent to take any new regulatory action that could limit the ability of small businesses to do business, but we have seen that that’s happening in some jurisdictions, and that’s a concern,” she said.
“Our policy is to ensure that we don’t do any regulatory action to harm the financial stability of the U