A bank regulator appointed by President Trump has been chosen to lead the panel that writes global lending rules, signaling that Wall Street will continue to benefit from less-stringent standards even if a Democrat takes the White House in 2020.
Randal Quarles, whom Trump named the Federal Reserve’s vice chairman for bank supervision in October 2017, will begin a three-year term as chairman of the Financial Stability Board on Dec. 2, succeeding Bank of England Governor Mark Carney. The panel, based in Basel, Switzerland, was formed in the aftermath of the 2008 financial crisis and represents the world’s richest countries.
Under Carney, the board “played a central coordinating role in building a resilient global financial system in the aftermath of the financial crisis,” Quarles said in a statement. “Ten years on, the FSB’s work remains just as relevant.”
The move may benefit the largest U.S. banks if it leads to fine-tuning of rules determining how much capital they’re required to hold as a buffer against shocks to the financial system, such as the collapse of a bubble in the $15 trillion American mortgage market in the mid-2000s, said Jaret Seiberg, an analyst with Cowen Washington Research Group.
“The biggest banks are pressing the Federal Reserve to conduct such a recalibration,” but with opposition from progressive Democrats who recently won control of the House of Representatives, the move would be easier for the Federal Reserve if it’s responding to global changes rather than acting on its own, Seiberg said.
Trump, a Republican whose party controlled Congress during the first half of his presidency, has worked to loosen banking regulations to buoy the U.S. economy.
The KBW Bank Index, a gauge of leading U.S. lenders, climbed 1.9 percent after the announcement, the largest gain in more than a week.
For large, diversified banks, “what happens outside the U.S. really matters,” Kenneth Leon, an analyst with CFRA Research, told the Washington Examiner. From that perspective, having an American regulator leading the global panel “means that there will be a standards consistency and maybe pragmatism that extends not only from the Federal Reserve but to the FSB.”
Before taking on the Fed role, Quarles was managing director at family-investment specialist Cynosure Group. He also served as undersecretary for domestic finance in former President George W. Bush’s Treasury Department before the financial crisis, work that drew criticism during his initial confirmation hearing for the Fed.
Sen. Sherrod Brown, an Ohio Democrat, said Quarles was too credulous of the mortgage-lending industry’s claims before the crisis that there was no need to worry about a housing-market bubble. The crisis began manifesting as early as 2006, when housing prices that had skyrocketed amid easy credit started to dip and homeowners found themselves owing more than their residences were worth.
Many defaulted on their loans, and mortgage-backed securities — which lenders had used to book profits immediately while avoiding risk — became impossible to value, forcing Wall Street firms to write down their value, and in September 2008, forcing investment bank Lehman Brothers into bankruptcy.
“The crisis came with a reminder that the financial system is global, that risks in one country can quickly spread to another, and that in keeping the system and the economy safe, we have no choice but to work together,” Quarles said in a recent speech reviewing modifications his team is planning to bank stress tests and capital requirements. “These adjustments will be coupled with our continued commitment to strong supervision, and our expectation that financial institutions manage their risks and hold sufficient capital to continue operations through times of stress.”
