Jerome Powell, governor of the U.S. Federal Reserve, talks before a meeting of the Board of Governors of the Federal Reserve in Washington, D.C. (Photographer: Andrew Harrer/Bloomberg)

Fed's Powell Favors Rules Review That Preserves `Core Reforms'

(Bloomberg) -- Federal Reserve Governor Jerome Powell said he favors reassessing the post-crisis financial regulatory effort, while emphasizing he’s against rolling back “core reforms” that have made banks safer.

“This is a good time to step back and ask what changes have worked and where adjustments should be made,” Powell said in the text of remarks he’s scheduled to make Thursday in Washington. He added that the Fed was currently contributing to “just such an exercise” by the Treasury Department.

Still, Powell cautioned against going too far.

“After years of raising capital and liquidity standards, and of stress tests and living wills, our financial system is much stronger now,” he said. “We should protect these core reforms and avoid a return to the highly vulnerable system that existed before the crisis.”

The Trump administration and congressional Republicans are expected to rewrite significantly the raft of banking regulation introduced under President Barack Obama in the wake of the 2008-2009 financial crisis. Some Fed officials, including Chair Janet Yellen, have warned against unraveling rules they say have made the financial system more resilient to the kind of funding threats that some large U.S. banks faced almost a decade ago.

Randy Quarles

The Fed’s position may shift, however, as President Donald Trump appoints new members to the central bank’s leadership. Trump already plans to nominate Randal Quarles, a senior Treasury official in the George W. Bush administration, to be the Fed’s top banking regulator, according to a person familiar with the selection process. Powell is heading the Fed’s banking oversight committee until Quarles is installed.

Powell said he supports raising thresholds determining which institutions are subject to some regulations. Some rules, he said, had been applied inappropriately to small and medium-sized firms, and others were too complex.

He also said the Fed is reviewing whether regulations require too much from boards of directors.

“It is important to acknowledge that the board’s role is one of oversight, not management,” he said. “We are currently reassessing whether our supervisory expectations for boards need to change to ensure that these principles, and not an ever-increasing checklist, are the basis of our supervisory work related to boards.”