Randal Quarles, nominated to be the first-ever vice chair of supervision at the Federal Reserve, told the Senate Banking Committee on July 27 that he would want to give banks more detail on the regulator's stress tests and Comprehensive Capital Analysis and Review.
Quarles saw a "lack of transparency" in the stress-test processes, adding that he would want to share more information with the public so that regulated entities have a better idea of what to expect from CCAR evaluations. Critics argue that greater disclosures on the CCAR process would make it easier for banks to pass the stress tests.
"It's not giving the entity the answer key," Quarles said. "It's giving them the questions. It's giving them the test."
The U.S. Treasury's list of recommendations on reforming financial regulation suggests public notice and comment on the Fed's models, economic scenarios, and other methodologies contained within the CCAR process.
Quarles said he agreed with many of the Treasury report's recommendations on tailoring regulations such as the $50 billion-in-assets mark for systemically important financial institutions and the $10 billion asset threshold for Dodd-Frank Act stress tests. He also expressed interest in simplifying the Volcker rule, which bars proprietary trading at banks, and improving the bankruptcy code.
But Quarles was less clear about his thoughts on a capital surcharge for global systemically important banks. Quarles said it was "something worthy of looking at," but declined to say if he would want the surcharge included in future stress tests, as is still the plan according to Fed Chair Janet Yellen's most recent Senate testimony.
On capital, Quarles acknowledged that the banking system has better capital levels, but expressed disappointment at the complexity of the current framework of provisions and laws.
"I think one of the ways in which that I think, on a clean slate, financial regulation could be improved would be to have a much simpler, clearer, less kaleidoscopic construction of the regulatory system that would make it easier for the regulators to understand where risk is and where it isn’t," Quarles said.
He declined to say whether he would broadly support an increase or decrease in capital requirements, but said he would like to revisit standards on community banks.