Federal Reserve Board Chairman Jerome Powell said March 1 that the U.S. central bank would not shy away from keeping enhanced prudential standards for banks that have less than $250 billion in assets, an option that the regulator would have under a bill awaiting a vote in the Senate.
Powell, while testifying at a Senate hearing, again said he supports the broad concepts of a bipartisan Senate compromise seeking to lessen current requirements for banks below that threshold, which Powell said do not pose major risks to the U.S. economy. The bill, expected to come up for a Senate vote next week, would immediately exempt companies between $50 billion and $100 billion in assets from requirements they are currently facing, such as annual stress testing.
Companies with assets between $100 billion and $250 billion, however, would be exempt from those enhanced standards after 18 months — although the Fed could deem individual banks important enough to keep those rules in place for them.
Powell said regulators "haven't been shy" about deciding that companies are systemically important even if they have less than $250 billion in assets, pointing out that Boston-based State Street Corp. is on the list of global systemically important banks despite falling below that figure. The Fed, he said, is "very capable" of reaching below that threshold when appropriate.
"We're perfectly happy to do that," Powell said. "So we'll feel comfortable doing this job, I believe."
The hearing, which focused on the Fed's latest semiannual monetary policy report, at times turned to a back-and-forth on whether the bill would relax requirements for large institutions, particularly those that are foreign-owned.
Sen. Sherrod Brown, D-Ohio, questioned whether it was wise to make stress testing less frequent for the institutions that would benefit from the bill, which requires periodic instead of annual stress tests for those companies. He also said that foreign-owned banks would be "mostly deregulated" under the proposal.
"I think it's important to note that it's not all candy and roses here," he said.
But Democratic co-sponsors of the bill pushed back against the notion that foreign-owned companies would be deregulated.
"I fundamentally disagree with that," said Sen. Jon Tester, D-Mont. "I think those views are a myth."
Powell, responding to a question from Tester, said the bill does not require the Fed to weaken any Dodd-Frank requirements for those institutions.
The Fed, he said, would publish a framework on how it would identify institutions that would still be subject to enhanced prudential standards. He also said stress testing has likely been "the most successful regulatory innovation" coming out of the financial crisis and said the Fed would look to require "meaningful, strong, regular, periodic stress tests" for institutions.
"I think it gives us the tools that we need to continue to protect financial stability," Powell said of the proposal.
Warren presses Powell on Wells Fargo order
Sen. Elizabeth Warren, D-Mass., focused on getting assurances from Powell that the Fed will keep a close eye on Wells Fargo & Co., which has faced scrutiny for its opening of millions of phony accounts, and ensure it fully meets the requirements of a consent order it reached with the Fed in early February.
The consent order restricts Wells from further growth until the Fed is satisfied it has bolstered its governance and controls, and requires Wells to submit plans to the Fed on how it will do so. Powell told Warren that the Fed's Board of Governors, which voted unanimously on the consent order, was not planning a vote on whether the plans from Wells are appropriate. The review of those plans, he said, was delegated to the Fed's supervisory staff. But Warren said a staff review is "not good enough."
Powell then said he would consider requiring the board to vote on the plans. He also said he would look at whether the Fed could release part of the follow-up reviews from outside consultants that will evaluate whether Wells is implementing fixes appropriately.
Warren, who had previously pushed for the ouster of Wells' former CEO and board members, said she hopes the Fed will not lift the restriction on Wells' growth just because it sees some progress along the way. That, she said, would detract from the "powerful message" the Fed sent to bank executives with the consent order.
"That message will be lost if the Fed does not enforce the order strictly and show the public and the banking industry that they mean business," she said.
