Federal Reserve chair nominee Jerome Powell told senators that regulations implemented after the financial crisis have ensured there are no longer any banks that are too big to fail and that he’ll work with Congress to ease rules for smaller banks.
Powell, President Donald Trump's choice to lead the Fed, declined to comment on what action the Fed will take next month on interest rates. He said economic conditions appear to be strong enough to warrant another rate hike but emphasized that any decisions will wait until the Federal Open Market Committee meets.
But he did give a preview of the Fed’s continuing efforts to gradually roll back its roughly $4.5 trillion balance sheet, saying he expects that figure will end up being larger than the Fed's balance sheet at the start of the financial crisis. He said he expects the final figure will be somewhere around $2.5 trillion and $3 trillion but added "we don't really know" whether that will be the case.
He also commented on a bipartisan proposal from several committee members that would, among other things, exempt smaller banks from stress testing, calling it "sensible" and "workable."
Powell declined to fully weigh in on the bill, saying the Fed is still reviewing it and will submit formal comments. But he told senators he didn't see anything in the bill that would put the financial system at risk.
Powell said it makes sense for policymakers to look back at Dodd-Frank changes passed after the financial crisis. He praised those efforts for leading to a much stronger financial system that now has higher capital requirements for banks and stress tests and said in response to a question that there are now no banks that are too big to fail. But he said policymakers should look back at the details and make sure the regulations are "tailored" in the most efficient way possible.
Powell, currently a Fed governor, largely received praise at his confirmation hearing today at the Senate banking committee, though some Democrats said his willingness to reduce regulations is concerning. Republicans generally praised Powell for his willingness to revisit the law, with Sen. Thom Thillis saying he would like to see the Fed do all it can to ensure it imposes regulations with the "lightest touch necessary."
Democrats said they were concerned that rolling back Dodd-Frank protections could lead to another crisis. Sen. Elizabeth Warren, D-Mass., told Powell that she doesn't want to see a "one-way street" of easing regulations for banks but refusing to make any rules stronger.
Pressed by Warren on whether any regulations need to be tougher, Powell said he thinks "they're tough enough."