In what was her fullest defense yet of the regulations enacted after the Great Recession, Federal Reserve Chair Janet Yellen said that without impeding economic growth and any changes to these rules should remain modest, reforms put in place after the 2007 to 2009 crisis have strengthened the financial system.
“The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,” the Fed chair said at an annual central bank research conference.
An implicit rebuke of President Donald Trump’s desire to drastically lighten the oversight of the financial sector in a bid to boost the economy and a broad defense of the existing regulatory framework was indicated by Yellen’s remarks.
Her current term expires in February and as Trump considers whether to renominate Yellen to another four-year term as head of the central bank, the remarks also may amount to her parting view on financial rules.
“She is sort of putting a stake in the ground here in terms of this regulation issue, which is the one sort of sticking point between her and Trump right now,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Specifically mentioning further relaxation of rules that apply to medium-sized and smaller banks and possible relaxation of the Volcker rule limit on banks’ equity trading, Yellen acknowledged some possible changes to individual regulations may be warranted. Even though the system remained “robust”, liquidity in parts of the bond market were needed to be improved by more steps, she agreed.
Top Trump administration officials and leading Republicans in Congress have scrutinized several such financial rules which she also defended.
Regulators are permitted to step in and wind down failing financial institutions and to assign stricter oversight to firms critical to the financial system by the annual stress testing of large banks, which were also specifically defended by Yellen.
lending and the overall economy was being hindered by the raft of new financial rules put in place as part of the 2010 Dodd-Frank financial reform law, Republicans have long argued.
the Trump administration is slowly replacing regulators who drafted the initial post-crisis rules with new officials much more sympathetic to a lighter regulatory touch even as though an intense partisan divide in Congress will likely hinder any broad legislative rewrite of existing rules.
An advocate of such changes has been Randal Quarles, Trump’s nominee as vice chair of the Fed for regulatory issues. More aggressive deregulation is likely to be pursued by And Gary Cohn, Trump’s top economic adviser and a reported favorite to replace Yellen.
Overall, Yellen said, “any adjustment to the regulatory framework should be modest and preserve the increase in resilience” in a financial system she said is now better able to weather future shocks.
Some investors who had hoped she might offer hints on the Fed’s path on interest rates were disappointed as she did not mention monetary policy in her prepared remarks.
While Treasury yields dipped slightly, U.S. stocks rose and the dollar fell.
(Adapted from Reuters)