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Fed's Warsh: Markets Working Well After Declines

Financial markets are working well despite sharper swings in asset prices, and overall liquidity does not seem in short supply after last week's stock market declines, Federal Reserve Governor Kevin Warsh said on Monday.

"While premiums on riskier assets rose some last week, markets are functioning well amid higher volatility," he said in comments prepared for delivery to the Institute of International Bankers.

"Market discipline appears effective as investors are reviewing their positions, and overall liquidity does not appear to be in short supply," he said.

Warsh said greater liquidity -- the ability to transform one asset into another without loss of value -- is driven by strong U.S. economic performance, financial innovation, and increased international capital flows.

High levels of liquidity have helped prevent imbalances in markets and helped investors disperse risks, he said.

As a result, strong liquidity has helped the economy withstand shocks such as corporate accounting scandals and bond downgrades for auto companies.

"The effects on the broader market appear to have been remarkably contained," he said.

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