At the Fed
U.S. banks are more resilient today and able to withstand periods of economic stress, Fed Chairman Jerome Powell said March 20, downplaying concerns that the Fed's rate hike pause could lead to a build-up in financial risks.
The Fed this week kept interest rates unchanged and signaled it may not raise rates again until 2020, continuing its dovish stance amid growing uncertainties about the economic outlook.
As a result, its benchmark federal funds rate will remain at a target range of 2.25% to 2.5%. That will give the Fed less ammunition than it has historically had to cut short-term rates, but it also raises the prospect that financial risks could build up as investors search for yield in a low-rate world.
Powell told reporters the link between monetary policy and financial stability "is an unsettled and difficult one in our world," in response to a question about the prospects of low rates leading to asset bubbles.
He also continued to express confidence in the improved resilience of the U.S. financial system, saying regulators are more systemically monitoring financial risks and that the Fed does not think vulnerabilities are high. The Fed is "carefully monitoring" potential issues that it does not expect would cause a financial crisis but could amplify an economic downturn, Powell said. He has previously flagged leveraged lending as one such issue.
But banks are much better equipped to handle such stresses, the Fed chief said.
"They're far better capitalized and better aware of their risks and more liquid than they were before the financial crisis," he said. "So they'll be more resilient in ... difficult states of the economy."
In other regulatory news, Powell said the Fed is not yet satisfied with Wells Fargo & Co.'s progress in fixing its risk management operation and will not lift the Fed's asset restriction on the bank until that happens.
"We will not lift that until Wells Fargo gets their arms around this, comes forward with plans, implements those plans and we're satisfied with what they've done. And that's not where we are right now," Powell said.
At the SEC
Wall Street's top securities regulator plans to explore the impacts from the dwindling number of asset managers amid growing concern that industry consolidation has robbed investors of the benefit of having a wider field of money managers to choose from.
On March 18, SEC Division of Investment Management Director Dalia Blass said she had directed her staff to begin reaching out to smaller asset managers to collect industry feedback on potential regulatory changes the SEC could investigate as potential fixes to the operational burdens the companies face on a day-to-day basis.
Blass' comments come amid a wave of consolidation in the asset management industry. Money management giants such as BlackRock Inc. and Invesco Ltd. have swelled in size over the last decade, in part by snatching up their smaller competitors to add to their already-growing piles of assets under management. The M&A craze has also been accelerated by the industrywide push toward lower fees and technology-driven platforms.
"I am concerned about what it will mean for investors, particularly Main Street investors, if the variety and choice offered by small and midsize asset managers become lost in a wave of consolidation and fee compression," Blass said.
Meanwhile, the White House reportedly plans to finally nominate Allison Lee to fill the vacant Democratic position on the SEC's five-person commission, according to Bloomberg.
Lee, who previously worked as an SEC attorney and an aide to former Commissioner Kara Stein, has been rumored to be the leading candidate to fill her old boss's shoes on the commission since August 2018. But her nomination has reportedly been pending at the White House for months. Stein stepped back from her position as commissioner in December 2018.
President Donald Trump is expected to announce Lee's nomination in the "coming weeks," the report said.
Consumer Financial Protection Bureau Director Kathy Kraninger is jump-starting a consumer advisory group all but dismantled by her predecessor.
Acting Director Mick Mulvaney disbanded all members of the CFPB's Consumer Advisory Board in June 2018 and pledged to reboot it in a smaller framework that more resembles the board's requirements in Dodd-Frank.
According to the CFPB, the board, along with the Academic Research Council, Community Bank Advisory Council and Credit Union Advisory Council, will "expand their focus to broad policy matters" and will hold in-person meetings more often.
Additionally, membership terms for the committees will be extended from a one-year term to two-year terms. Applications to serve on the committees are open for 45 days.