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Senate Banking Committee Hearing: Federal Reserve Nominees 5.15.2018

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Senate Banking Committee Hearing: Federal Reserve Nominees 5.15.2018 Senate Banking Committee Hearing: Federal Reserve Nominees 5.15.2018 On May 15th, the Senate Banking Committee held a hearing to consider the following nominations: The Honorable Richard Clarida, of Connecticut, to be a Member and Vice Chairman of the Board of Governors of the Federal Reserve System Ms. Michelle Bowman, of Kansas, to be a Member of the Board of Governors of the Federal Reserve System Key Takeaways Both nominees expressed support for the tailoring of financial regulation to the size and complexity of the institution, but highlighted the need to continue to ensure safety and soundness in the financial system. Both nominees expressed support for the continued normalization of the Fed’s balance sheet. Democratic Members asked nominees about recent Federal Reserve proposals that would adjust capital standards. The following themes consistently emerged throughout the hearing: Tailoring of regulations o Chairman Crapo (R-ID) asked the nominees their thoughts on tailoring regulations to the size and complexity of individual institutions. Clarida said that tailoring and efficiency of regulations are important goals while at the same time continuing to ensure the safety and soundness of the financial system. Bowman highlighted the need to apply the appropriate amount of regulation depending on size and complexity of the institution. o Senator Tillis (R-NC) asked witnesses about whether S.2155 was an appropriate way to tailor regulations. Bowman discussed the importance of tailoring regulations but did not specifically discuss 2155. Fed balance sheet / Quantitative Easing o Chairman Crapo (R-ID) asked the nominees about normalization of the Fed balance sheet. Clarida said that Fed Chairman Powell’s recent proposal seems to make sense, but he has not studied the numbers in detail yet. o Senator Toomey (R-PA) asked nominees about continuing normalization of the Fed balance sheet and, given the unprecedent actions of the Fed in recent years, what is normal? He also asked about quantitative easing. Clarida said there are costs and benefits to QE, which should be considered. Bowman agreed that normalization is the appropriate path forward. Community Reinvestment Act o Senator Cortez Masto (D-NV) asked the nominees about the Administration’s plan to modernize the CRA. Bowman said that it is important and that the Administration is reviewing the CRA, but it is important to keep in mind the needs of all parts of communities. Clarida also said he would be open to review, but the CRA is important and any modernization effort needs to respect the essential mission of the law. Housing finance reform o Senator Tester (D-MT) asked nominees whether they thought there should be a government guarantee for the 30 year fixed note. Bowman said that they 30 year fixed rate note is important for community members, and without some sort of guarantee she did not think banks would be able to offer the product. Clarida also said that it has served the country well for a long time, and sees it as an important product going forward as well. o Tester (D-MT) also asked whether the GSE conservatorship has had a negative impact on the economy. Both Clarida and Bowman said that it is not a desirable state. Market volatility o Senator Scott (R-SC) asked nominees whether stock market volatility would impact their decisions regarding raising interest rates. Both said that it would not, as market volatility is not one of the pillars of monetary policy. Scott agreed with them, and said that low interest rates are bad for savers and seniors. Non-Bank SIFI designation o Senator Scott (R-SC) asked whether an activities based approach makes sense for SIFI designation. Scott also noted that he would like to see more clarity around what gets an institution designated and how an institution gets undesignated. Clarida said that an activities based approach does make sense, but that he hasn’t studied the topic in detail. Capital Requirements o Ranking Member Brown (D-OH) asked witnesses whether capital requirements are the most important rules for banks to be able to withstand tough economic conditions. Bowman noted that capital requirements are important, but said that liquidity requirements are also very important. Brown asked both nominees whether they would oppose recent Fed proposals to weaken leverage requirements for large institutions. Neither witnesses would commit to opposing the proposals, but said they would study all proposals carefully. Cybersecurity o Senator Reed (D-RI) asked whether the nominees thought bank holding companies should be required to have cybersecurity expertise on their boards, and if there was anything the fed should do to encourage this? Both nominees said that cybersecurity is increasingly important, but did not comment on the direct proposal. State-based insurance framework o Senator Scott (R-SC) asked the nominees whether they support the current state based insurance regulatory framework. Bowman said that a dialogue with state regulators is important, and she would look to continue to this dialogue with state insurance regulators. .
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