Fed’s top regulator takes heat from both parties

The Federal Reserve’s top regulatory official took heat from lawmakers in both parties Wednesday over the impact of post-financial crisis regulations and the central bank’s efforts to loosen them. 

Randal Quarles, the Fed’s vice chairman of supervision, fielded concerns from lawmakers during a House Financial Services Committee hearing over the pace of the central bank’s attempts to revamp bank regulations.

While Democrats ripped Quarles and several other Trump-appointed regulators over proposals to weaken key portions of the Dodd-Frank Act, their GOP colleagues urged the Fed to move quicker to ease portions of the sweeping post-crisis banking law.

Quarles asserted that the Fed’s efforts to “tailor” Dodd-Frank regulations was a natural and necessary part of adapting the 2010 law to a stronger banking sector. 

“No rule can be truly evergreen. Gaps and areas for improvement will always reveal themselves over time,” Quarles said, appearing beside Federal Deposit Insurance Corp. Chairman Jelena McWilliams and National Credit Union Administration Chairman Rodney Hood. 

“Our responsibility is to address those gaps without creating new ones, to understand fully the interaction among regulations, to reduce complexity where possible, and to ensure our entire rulebook supports the safety, stability and strength of the financial system.”

But Quarles did little to soothe the concerns of Democrats who feared that the Fed’s moves could weaken financial stability.

“I’m very concerned that our banking regulators are following the dangerous deregulatory blueprint that the Trump administration laid out,” said Rep. Maxine Waters (D-Calif.), chairwoman of the Financial Services panel.

President Trump took office in 2017 on the promise to “dismantle” Dodd-Frank after years of failed GOP attempts to gut the law. While Dodd-Frank remains largely intact almost three years later, Trump-appointed regulators and a bipartisan group of lawmakers have loosened key portions of the post-crisis banking rules enacted by former President Obama.

Waters and several of her Democratic colleagues focused on a recent rollback of the “Volcker rule,” which bans banks from making certain risky investments with company capital. 

The new rule scrapped a requirement for banks to prove that trades enacted to make markets for clients’ speculative investments and underwrite stock offerings comply with regulations if banks follow certain risk mitigation practices. 

The revision also exempts banks below certain asset thresholds from the rule, creates three levels of increasing compliance requirements for banks based on size and complexity, and allows banks to use a looser standard to calculate risk for certain investments. 

Waters argued that “regulators are opening the door to bad practices that contributed to the devastating financial crisis of 2008.”

Republicans have been largely satisfied with Trump’s financial regulatory appointments, sometimes more so than the president himself. While Rep. Patrick McHenry (N.C.), the ranking Republican on the Financial Services panel, praised Quarles, he asserted that there “is certainly more work to be done.”

“We need to make sure that the tools are there to help serve consumers and communities,” McHenry continued, urging the Fed to act “ahead of market conditions and economic conditions.”

McHenry and several GOP colleagues raised concerns about when regulators would finalize the “stress capital buffer,” a proposal meant to synthesize federal requirements for how much capital a bank must hold in general and how much it must hold in times of crisis.

Rep. Ann Wagner (R-Mo.) pressed Quarles to finalize the proposal before banks are subjected to the 2020 stress testing cycle.

“We’ve been talking about this for years,” Wagner said. “We need these rules updated.”

“I think we should not be considering these issues piecemeal,” Quarles responded, adding that the Fed has “the opportunity and the responsibility” to consider a broad range of rules and factors when finalizing their proposal.