Federal Reserve Chairwoman Janet Yellen downplayed the need for regulatory relief for regional banks and other financial firms at a congressional hearing Wednesday, expressing skepticism about Republican bills to reform rules imposed in the wake of the financial crisis.
In her prepared testimony, Yellen said the community banks and regional banks Congress has expressed concern about are performing well.
There are “only a few” areas in which the post-crisis financial rules might have limited the Fed’s ability to tailor regulation to the size and risk of banks, Yellen said. Those are stress testing and planning for orderly failure at some of the smaller regional banks that fall just above the line of $50 billion in assets that mark banks for tighter regulation.
Raising the $50 billion threshold, Yellen told lawmakers at the hearing, is not a “must-have.”
Other regulators have supported raising the threshold. Meanwhile, members of both parties in Congress have tried to move legislation providing regulatory relief for regional banks. On Wednesday, Republicans on the House Financial Services Committee advanced legislation doing that and also changing the process by which regulators identify banks and non-banks as threats to the financial system if they fail.
Yellen defended that process Wednesday, warning against changes to the new Financial Stability Oversight Council, a group of regulators tasked with identifying companies that could threaten the financial system and marking them for added regulation.
“We would not like to see a [Financial Stability Oversight Council] process that tells us exactly how to tailor our supervision to firms of different sizes,” she said. “We already have an elaborate program in which do currently tailor the requirements, within the confines of the law, to match the footprint and complexity of the firms.”
The chairwoman also express skepticism about the need for new laws changing how the council works and how a firm can avoid being labeled a threat to the financial system.
“These firms understand very well why they’ve been designated and what changes in their business model would change that assessment,” she said.
Yellen’s appearance came as the financial industry and some members of Congress, led by Republicans, are seeking to pass regulatory relief bills. Liberal Democrats have warned that such attempts could go beyond mere relief for community banks and have tried to discourage Republicans from adding banking-related measures to must-pass legislation funding the government.
