Complex Financing

New housing construction may be down  – by 10 percent last month - but that’s not to say consumers have little interest in home financing. In fact, just last week mortgage applications rose by a whopping 18 percent! Applications to refinance were even higher, at 21 percent.

Considering that the Federal Reserve is keeping interest rates low, it comes as no surprise that consumers are looking to take advantage of the opportunity to get more for less.

Meanwhile, the Federal Reserve is increasing its oversight of banks. Its goal, to ensure the kind of questionable lending practices that sent the economy into a tailspin never happen again.

As reported by the Associated Press, specifically, the Federal Reserve and Congress are working to:

1) Require banks to have more capital on hand so as to help them absorb the impact of financial losses.

2) Determine links among financial institutions that suggest dangerous ties (i.e., one bank’s losses or failure could dramatically and negatively affect another).

3) Create a council of regulators to “coordinate” the oversight of financial institutions. This council would include the Federal Reserve.

4) Determine the best course of action if and when it comes time to “dismantle” a financial institution in a way that is not going to devestate the economy.

Beyond that, comments from Federal Reserve Chairman Ben Bernanke on Wednesday emphasized the importance of focusing on the overall health of the financial system:

“The crisis has demonstrated that a too-narrow focus on the safety and soundness of individual insitutions or systems can result in a failure to detect and thwart emerging threats to financial stability that cut across many firms or markets.”

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