Friday, July 28, 2017

Fed Nominee Favors Regulatory Refinement and Transparency

Randal Quarles says “some refinements” are in order.

At his July 27, 2017 confirmation hearing before the Senate Banking Committee, Randal Quarles testified that if confirmed he would advocate not for a rollback, but a reexamination of post-crisis reforms. He also advocated for better transparency on the part of regulators, and promised to approach the position with an open mind and in cooperation with the members of the Committee.  

 

Mr. Quarles has been nominated as the Fed’s very first Vice Chair for Supervision. Quarles is a former Wall Street lawyer and U.S. Treasury official, and if confirmed would serve as the Fed’s first Vice Chair for Supervision, a position created by the 2010 Dodd-Frank Act to oversee the largest U.S. banks. Former President Barack Obama never made a nomination to fill the position, and former Federal Reserve Governor Daniel Tarullo, who left the Fed in April, filled the role in a de facto capacity. The position is one of three vacancies on the Fed Board, but is key to the future direction of financial regulation. The influence of the position will be tempered, however, because actions of the Vice Chair for Supervision will have to be approved by Fed Chairwoman Janet Yellen.  

 

In Mr. Quarles’ prepared statement to the Committee, he came out in support of the Treasury Department’s June 2017 report laying out its regulatory core principles under the new administration. Like the report, Quarles sees some Dodd-Frank era reforms as necessary, even vital. But, now that the crisis is well past, it is time to reexamine this first round of regulation to see where it can be refined and eliminate some of the unintended adverse consequences. 

 

“As recognized by the Treasury report, regulatory policies enacted since the financial crisis have improved the safety and soundness of the financial system. But as with any complex undertaking, after the first wave of reform, and with the benefit of experience and reflection, some refinements will undoubtedly be in order.”  

 

In particular, Quarles endorsed changes to aspects of banks stress testing related to testing resiliency in a major crisis as well as exempting small and medium-sized banks from many aspects of stress testing and other scrutiny more appropriate for larger institutions.

 

It is the lack of transparency around the stress tests that Quarles objects to most strongly. 

 

"I do think the Fed can look at being more transparent about those activities and do it in a way that doesn't reduce the effectiveness of those tests," . . .  "If you are clear about what you expect you will get more compliance."

Quarles promised to approach the Vice Chair for Supervision position with humility and “with a continual openness to input from every source.” He also promised to work closely and cooperatively with the Senate Banking Committee.

 

An archive of Mr. Quarles’ confirmation hearing may be found at: https://www.banking.senate.gov/public/index.cfm/hearings?ID=73257755-CECA-432A-B72E-DFA530DAC8CE

 

The full text of Mr. Quarles’ opening statement is available at: https://www.banking.senate.gov/public/_cache/files/15610ed4-2447-4018-affb-6783faf93b8e/FC66533246286129440D6B080B051BDE.quarles-testimony-7-27-17.pdf

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