Fed leaves open questions about how central banks will regulate Wall Street

The extent to which the Fed will spend the next several years tightening regulatory policy after easing rules under Trump-appointed officials will depend on who Biden ultimately chooses to succeed Randall Quarles, The governor of the late central bank acting as its regulatory point. man until last month.

Mr. Powell has said he will defer to anyone who fills that role in setting the central bank’s vision of regulation. Mr Biden said on Monday that he would soon nominate a new supervisory chief.

Mr. Powell told reporters in September, “I respect that this is the person who will set the regulatory agenda going forward. It’s entirely up to a new person to come in and look at the current state of regulation and supervision.” is appropriate. and suggest appropriate changes.”

During Mr. Powell’s nearly four years as head of the Fed, the central bank has revamped big-bank stress tests, including eliminating pass-fail grades, changing its rules for US lenders based on their size. tailored, and the major postcrisis rules such as have been simplified. Volcker Rule Prohibition on Proprietary Trading.

Mr. Powell and supporters of those changes refer to them as sewing complex rules. Some Democratic critics say the changes, while each minor individually, have substantially undermined the original overhaul in its totality.

Ms. Brainard, a key colleague of Mr. Powell’s on monetary policy, has regularly disagreed with her decisions to ease bank rules made after the 2008-09 financial crisis. Ms Brainard has generally said the Fed’s moves to soften the rules have gone too far. If confirmed as deputy chairman of the Fed’s board, Ms. Brainard will give a vote on regulatory matters before the central bank, but will not set its own regulatory agenda.

Industry executives welcomed Monday’s Fed nomination.

Kevin Frommer, Chief Executive Officer of the Financial Services Forum, said: “We expect regulators to continue to hold the largest banks to the high regulatory and supervisory standards that have been in place to support a resilient and necessary part of the US financial system. ” Represents the largest US banks, said a written statement.

In addition to Fed vacancies, several top financial positions are vacant. These include the vice president of Federal Deposit Insurance Corp. and a full-time director for the Federal Housing Finance Agency, which oversees government-controlled mortgage giants Fannie Mae and Freddie Mac.

Soule Omarova, Mr Biden’s nominee to head the office of the Comptroller of the Currency, which oversees national banks, faced bipartisan doubts at a hearing last week and an uncertain path to confirmation. Another nominee, Rostin Behnum, awaits confirmation from the top US derivatives overseer, the head of the Commodity Futures Trading Commission. Mr. Behnam currently serves as Acting Chairman of the CFTC.

Gary Gensler, who as chairman of Mr Biden’s Securities and Exchange Commission has outlined an aggressive agenda that threatens to squeeze the financial industry’s profit margins, was confirmed in April. The choice of Mr. Biden to head Rohit Chopra, former advisor to Sen. Elizabeth Warren (D, Mass) and head of the Consumer Financial Protection Agency, was confirmed on 30 September.

If Mr. Powell and Ms. Brainard win Senate approval for their positions, three positions will remain on the Fed’s seven-member board: a vice president for supervision and two separate governors’ seats.

The Fed’s reconstituted board will be tasked with approving or rejecting a bevy of bank deals announced over the past year. Bank mergers and acquisitions are on pace in 2021 for its biggest year since at least 2008, when some of the larger banks were forced to sell due to the collapse.

The vice president for supervision may lead a review of the central bank’s framework for reviewing bank deals. That approach is more likely if the nominees share Ms. Brainard’s view that the Fed should examine bank mergers more closely.

“The Fed probably won’t be in a big rush to approve the merger until the new nominees settle down and banks develop a strategy on what they want to do on the merger,” said Jeremy Kress, assistant professor of business law. Huh.” The University of Michigan which conducts research on financial regulation.

Mr Biden issued an executive order in July asking bank regulators and the Justice Department to conduct a “more robust investigation” of bank deals.

Also on the Fed’s regulatory agenda are what steps should be taken to address the financial risks posed by climate change, the level of regulation needed around cryptocurrencies and how banks should treat Treasury and central bank deposits. should do.