Fed official: It's too early to ease post-crisis rules on US banks

A top Federal Reserve official says it's too early to ease post-crisis rules on the nation's banks, especially at a t...

Posted: Apr 19, 2018 9:26 PM
Updated: Apr 19, 2018 9:26 PM

A top Federal Reserve official says it's too early to ease post-crisis rules on the nation's banks, especially at a time of growing risk in the financial system.

Federal Reserve Governor Lael Brainard said Thursday that regulators should wait until the rules have been tested by severe stress before making changes, such as loosening requirements for how much cash banks have to keep on hand.

"Prudence would argue for waiting until we have tested how the new framework performs through a full [economic] cycle before we make judgments about its performance," Brainard said in prepared remarks at the Global Finance Forum in Washington.

Related: Regulators push to shrink big banks' rainy-day fund

Under the Fed's new leadership, regulators have taken early steps to rewrite rules for the nation's banks that would require them to hold less cash to weather a crisis.

Separately, Congress is considering the most sweeping changes yet to the 2010 Dodd-Frank regulatory reform law, which would ease the burden on dozens of regional banks and thousands of community banks across the country.

Randal Quarles, the Fed's vice chair of bank supervision, who was nominated by President Trump, said this week that recent steps by the central bank were not intended to deregulate the banking industry, but to make regulations more efficient.

"It's not a question of deregulating. It's not a question of swinging the pendulum back," Quarles said Wednesday at the Bretton Woods conference in Washington. "It's a question of achieving objectives with an eye for efficiency, and I think that can significantly reduce the burden on the financial sector that doesn't impair safety and soundness."

At a hearing on Capitol Hill on Thursday, Republican Senator John Kennedy of Louisiana warned Quarles that regulators should "tread carefully" before changing rules "until we see how our banks do with a full-blown recession."

Democratic senators raised their own concerns about why the Fed pushed ahead with its recent proposals despite a lack of consensus among Fed governors and other regulators.

Last week, Brainard cast a rare "no" vote when the Fed announced plans to soften a key safeguard known as the leverage ratio that megabanks must adhere to.

"The decisions being made now may lead us to the next crash," said Senator Sherrod Brown, the top Democrat on the Senate Banking Committee.

"When times are good, policymakers, lawmakers and regulators - if they're not vigilant - can get lulled into a sense that 'this time is different,'" he added, referencing a 2009 book on the history of financial crises.

Fed officials have said risks to financial stability are "moderate" for now, but growing. They point to lofty stock prices and ballooning corporate debt as two potential trouble spots.

Global debt, public and private, has swelled to an all-time high of $164 trillion, making it more difficult for countries to steer out of a fiscal calamity and more expensive for them to pay off debts as interest rates rise, according to the International Monetary Fund.

Some Fed officials and other world policy makers also worry that recent steps by Republicans and the Trump administration to enact tax cuts, at a time when the economy is healthy, could speed up inflation faster than anticipated.

Such a speedup could force the Fed to lift interest rates faster. And if the Fed gets the timing wrong, it could bring on a recession.

Related: Senate moves to repeal Obama-era car loan rule

Brainard said there would be "severe costs" if banks did not have enough capital to absorb losses caused by a stressful episode in the financial system.

Instead, she called for banks to hold more money than they already do to ensure they can shoulder a crisis.

"By the time losses are rising, it is generally too late to start building buffers, which becomes all too clear with devastating consequences in some some countries during the last crisis," she said.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 698692

Reported Deaths: 13148
CountyCasesDeaths
Marion953091706
Lake50868931
Allen38607670
Hamilton34028404
St. Joseph33404537
Elkhart26868431
Vanderburgh21948393
Tippecanoe21483212
Johnson17346371
Porter17059297
Hendricks16638309
Clark12600190
Madison12239335
Vigo12109243
Monroe11253166
LaPorte10639204
Delaware10251183
Howard9572211
Kosciusko9009112
Hancock7866139
Bartholomew7807153
Warrick7660155
Floyd7509175
Wayne6849196
Grant6732167
Boone648199
Morgan6341137
Dubois6054117
Marshall5720108
Cass5658102
Dearborn565275
Henry5545100
Noble534983
Jackson489869
Shelby474495
Lawrence4304118
Gibson425788
Harrison425370
Montgomery414686
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DeKalb404183
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Knox363889
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Pike129634
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Newton102434
Brown98940
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Benton94913
Martin82115
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Switzerland7688
Union69510
Ohio55411
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Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1039455

Reported Deaths: 18827
CountyCasesDeaths
Franklin1205361345
Cuyahoga1051802040
Hamilton774991164
Montgomery49566984
Summit44613904
Lucas39235757
Butler37466566
Stark31150890
Lorain23831467
Warren23725291
Mahoning20653581
Lake19760360
Clermont19325226
Delaware17811130
Licking15996205
Fairfield15520195
Trumbull15412458
Medina14693255
Greene14510233
Clark13455287
Wood12575182
Portage12183193
Allen11225229
Richland10924197
Miami10470211
Muskingum8653127
Columbiana8482225
Wayne8463209
Pickaway8394120
Tuscarawas8317239
Marion8302135
Erie7434153
Ross6650145
Hancock6608123
Geauga6462146
Ashtabula6374163
Scioto625699
Belmont5523158
Union551747
Lawrence5439102
Huron5237112
Darke5229121
Jefferson5223147
Sandusky5096118
Seneca5050118
Washington5031107
Athens494854
Auglaize470684
Mercer467984
Shelby453489
Knox4339108
Madison417957
Putnam417698
Ashland409186
Fulton402565
Defiance396396
Brown383955
Crawford3827100
Logan370076
Preble368295
Clinton357459
Ottawa352278
Highland345058
Williams318274
Champaign317355
Jackson305051
Guernsey303448
Perry286949
Fayette276348
Morrow272639
Henry261866
Hardin261163
Coshocton256057
Holmes251799
Van Wert237562
Gallia232146
Pike231031
Adams226251
Wyandot224553
Hocking207057
Carroll187846
Paulding167638
Meigs140938
Noble131837
Monroe128541
Morgan105822
Harrison104836
Vinton81013
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