One theme stood out during Federal Reserve Chairwoman Janet Yellen’s two days of congressional testimony that wrapped up Wednesday afternoon: Democrats prodding her to undercut the Trump administration’s rationale for easing bank regulations.
Amid a Republican effort to undo many of former President Barack Obama’s post-crisis financial rules, a number of Democrats sought to get the nation’s top economist to say that bank loans are not unavailable and that the economy is not suffering because of bank overregulation, counter to President Trump’s claims that the post-crisis rules have made it difficult for banks to lend, starving businesses of credit.
Republicans only occasionally tried to push back.
At the start of Wednesday’s hearing before the House Financial Services Committee, the panel’s top Democrat, Rep. Maxine Waters of California, led Yellen through a list of questions designed to portray the U.S. as thriving under current bank rules. In short order, she got Yellen to say that business lending is expanding, employment is growing, wages are rising, household wealth is growing and foreclosures are declining.
Yellen wrapped up by saying that the rules have helped the U.S. recover from the recession faster than other countries did.
“We have put in place stronger financial regulation that has forced our banks to build up their capital buffers, to deal with problem loans and to strengthen themselves to the point where they have been able to support economic growth and recovery in our economy,” she said.
On Tuesday, Sen. Elizabeth Warren, D-Mass., had succeeded in getting Yellen to contradict Trump economic adviser Gary Cohn, who had said that higher capital requirements are preventing banks from lending.
“It’s not a requirement that they take money and stick it in a safe where it can’t be used,” Yellen said of the capital rules. “It’s a requirement that they finance the lending that they want to do with a certain amount of capital and not only with debt.”
At several times, Republicans were successful in getting Yellen to say that economic growth during the recovery has been “disappointing.”
But only one, Rep. Blaine Luetkemeyer of Missouri, addressed the specific point about whether credit has been restricted.
He challenged Yellen’s citation of a survey from the National Federation of Independent Businesses in arguing that only few businesses had trouble finding loans. The vast majority of businesses, he noted, were not even seeking to borrow.
Other surveys have indicated varying degrees of credit availability for businesses.
His constituents, Luetkemeyer said, constantly complain about a regulatory “onslaught.” He asked if and when Yellen had actually spoken to a small business owner or farmer. Yellen said she had spoken with a small business owner within the past few weeks, but not recently with a farmer.
Throughout her testimony, Yellen defended the post-crisis bank rules that are now at risk of changes from the Republican-led government. In particular, she said the Dodd-Frank mechanism for regulators to handle failing banks is necessary and shouldn’t be repealed. Yellen argued in favor of the Fed’s role in negotiating international regulatory agreements and of the “Volcker Rule” that restricts banks that receive deposit insurance from engaging in speculative trading.
Yellen, an Obama appointee, has a term as chairwoman extending to February 2018. She has said that she intends to serve out that term. During the campaign, Trump criticized her on several occasions, suggesting that she was using the powers of the Fed to damage his candidacy.
