President Trump nominates FRB Governor Powell to be next Chair

Following President Trump’s nomination of FRB Governor Jay Powell to succeed Janet Yellen as the next Chair, many questions have arisen about the implications for regulatory policy.

Although Governor Powell’s views on specific financial regulatory policy issues will become clearer in the coming days and weeks—especially during his nomination hearing before the Senate Banking Committee—a look at his previous statements on key issues may provide important context for his outlook and approach.

Below is our take on Governor Powell’s “top ten” most significant recent statements covering the post-crisis regulatory framework (including possible amendments), capital planning and stress testing, the enhanced supplementary leverage ratio, resolution planning, the Volcker Rule, housing finance reform, and expectations for bank boards, among others.

  1.  “…we should protect the core elements of the reforms for our largest banking firms in capital regulation, stress testing, liquidity regulation, and resolvability.”1
  2. “…we should assess whether we can adjust regulation in common-sense ways that will simplify rules and reduce unnecessary regulatory burden without compromising safety and soundness.”
  3. “We also would support an increase in the $10 billion Dodd-Frank Act asset threshold for company-run stress tests and risk committee requirements, and in the $50 billion threshold for enhanced prudential standards under section 165 of the Dodd-Frank Act.”
  4. “The Federal Reserve is committed to increasing the transparency of the stress testing and CCAR processes. We will soon seek public feedback concerning possible forms of enhanced disclosure. One such disclosure would be a range of indicative loss rates predicted by the Federal Reserve’s models for various loan and securities portfolios. We would also disclose more information about risk characteristics that contribute to the loss-estimate ranges.”
  5. “In light of the substantial progress in the build-out of our overall regulatory capital and stress testing frameworks over the past few years, the Federal Reserve is taking a fresh look at the enhanced supplementary leverage ratio. We believe that the leverage ratio is an important backstop to the risk-based capital framework, but that it is important to get the relative calibrations of the leverage ratio and the risk-based capital requirements right. Doing so is critical to mitigating any perverse incentives and preventing distortions in money markets and other safe asset markets. Changes along these lines also could address concerns of custody banks that their business model is disproportionately affected by the leverage ratio.”
  6. “We believe it is worthwhile to consider extending the cycle for living will submissions from annual to once every two years, and focusing every other of these filings on key topics of interest and material changes from the prior full plan submission.”
  7. “In our view, there is room for eliminating or relaxing aspects of the implementing regulation that do not directly bear on the Volcker rule’s main policy goals. We also believe it would be constructive for Congress to consider focusing the Volcker rule on entities with significant trading books and eliminating the requirement that smaller firms be subject to the rule. In the meantime, we believe that it is worthwhile for the agencies to consider further tailoring of the implementing rule as it applies to smaller firms and firms with small trading books, and to consider ways to streamline or reduce the paperwork and reporting burden associated with the rule.”
  8. “…we believe that small banking organizations could be exempted from the Volcker rule and from the incentive compensation requirements of the Dodd-Frank Act.”
  9. “My topic today is the urgent need for fundamental reform of our system of housing finance—the great unfinished business of post-financial crisis reform.”2
  10. “The new approach distinguishes the board from senior management so that we can spotlight our expectations of effective boards. The intent is to enable directors to spend less board time on routine matters and more on core board responsibilities.”3

As further developments occur, including key takeaways from Governor Powell’s confirmation hearing, Deloitte will issue additional updates as appropriate.

Contacts

Chris Spoth
Executive Director | Deloitte Center for Regulatory Strategy, Americas
Managing Director | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

David Wright
Managing Director | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Alex LePore
Senior Consultant | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

1Board of Governors of the Federal Reserve System, Governor Jerome H. Powell, “Relationship Between Regulation and Economic Growth,” (June 22, 2017), available at https://www.federalreserve.gov/newsevents/testimony/powell20170622a.htm.
2Board of Governors of the Federal Reserve System, Governor Jerome H. Powell, “The Case for Housing Finance Reform,” (July 6, 2017), available at https://www.federalreserve.gov/newsevents/speech/powell20170706a.htm.
3Board of Governors of the Federal Reserve System, Governor Jerome H. Powell, “The Role of Boards at Large Financial Firms,” (August 30, 2017), available at https://www.federalreserve.gov/newsevents/speech/powell20170830a.htm.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP.  Please see www.deloitte.com/us/about for a detailed description of our legal structure.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2017 Deloitte Development LLC. All rights reserved.

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