Federal Reserve nominee Jerome Powell got into a heated debate over bank regulation with Senator Elizabeth Warren Tuesday.
Powell was testifying to the Senate Banking Committee as part of his confirmation for the chairmanship of the Federal Reserve. Warren challenged him to name any bank regulations he thinks would be tougher.
Powell said he thinks regulations are “tough enough.” Instead of new rules, the Fed should focus on toughing enforcement on things like ‘living wills,’ the documents that the biggest banks are required to submit to regulators to prove that their failure could be resolved without a bailout. So far, bank regulators have been critical of the submissions but have not taken action against the banks whose living wills have failed to impress.
Warren said Powell’s approach “deeply concerned” her.
Powell said that the focus of the Fed should be on making the postcrisis regulatory regime more efficient and tailored to the risks posed by individual firms.
Powell also indicated that he favors reworking to Volcker Rule, the ban on proprietary trading. “I do believe we could do that in a way that is faithful to both the language and intent of the law,” he said.
President Donald Trump has promised to rework the postcrisis system of regulation that was put in place beginning with the Dodd-Frank Act of 2010. Critics say that the regulations are too costly for smaller financial institutions, entrust too much power to the discretion of regulators, and favor the large banks. Powell’s remarks indicate that he supports the broad outlines of the president’s agenda.
Powell said he would not characterize his agenda as “deregulation” but revisiting regulation to make sure “what we did makes sense.” For instance, he said it was possible that the Fed could change the frequency of stress tests, conducting them at less than the current annual rate.
Powell also signaled that the Fed will likely raise its interest rate target in December. The case for a rate hike “is coming together,” Powell said. To support this he cited high confidence among businesses and households.