Yellen, Draghi Mount Defense of Post-Crisis Financial Regulation

(Bloomberg) -- The world’s two most powerful central bankers on Friday delivered back-to-back warnings against dismantling tough post-crisis financial rules that the Trump administration blames for stifling U.S. growth.

European Central Bank President Mario Draghi, speaking at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, said it was a particularly dangerous time to loosen regulation given that central banks are still supporting their economies with accommodative monetary policies.

That warning followed earlier remarks by Fed Chair Janet Yellen, who offered a broad defense of the steps taken since the 2008 financial-market meltdown and urged that any rollback of post-crisis rules be “modest.”

The combined effect was “a subtle shot across the bow of those who seek deregulation,” said Michael Gapen, chief U.S. economist at Barclays Capital Inc. in New York.

The complementary speeches come at what may be the tail end of Yellen’s tenure at the Fed’s helm. President Donald Trump is not expected to reappoint her when her leadership term expires in February, according to economists surveyed by Bloomberg.

Different Agenda

Gapen said that by delivering overlapping messages, Yellen and Draghi could help amplify their points, but “in practice that’s not the agenda the Trump administration is likely to seek.”

In a talk aimed broadly at defending the merits of globalization, Draghi said it’s crucial to make sure open policies on trade and global finance should be safeguarded with regulations designed to make globalization fair, safe and equitable.

“We have only recently witnessed the dangers of financial openness combined with insufficient regulation,” Draghi said, referring to the global financial crisis of 2008-09.

Any reversal of the regulatory response to that crisis, he added, “would call into question whether the lessons of the crisis have indeed been learnt -- and thus whether financial integration can still be considered safe.”

That point was all the more important given that central banks are continuing to provide stimulus to their economies. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis,” Draghi said.

To contact the reporters on this story: Alessandro Speciale in Jackson Hole at aspeciale@bloomberg.net, Christopher Condon in Washington at ccondon4@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Scott Lanman