Donald Trump’s nominee to head the Federal Reserve’s regulatory wing has said he wants to inject greater “transparency” into the system of stress tests that the central bank uses to gauge banks’ health.
Randal Quarles said it was possible for the Fed to provide more information about the tests — something that has been a perennial demand from Wall Street, which has complained about the opaque nature of the process.
The remarks came in a confirmation hearing before the Senate banking committee, which was also examining Joseph Otting, a former banker whom Mr Trump had tapped to head the Office of the Comptroller of the Currency.
Mr Quarles also endorsed previous recommendations for regulatory reform from Daniel Tarullo, who oversaw regulation on the Fed’s board of governors until April, among them a simplification of the Volcker rule that restricts banks’ ability to make bets with their customer deposits.
Mr Quarles said in introductory comments that some “refinements” to the financial regulatory system were necessary. The important thing in so doing was ensuring the system remained robust and resilient to shocks, he added.
The appointment will mark the first time the Fed has had a vice-chairman for supervision — a position created under the Dodd-Frank Act but which has never been filled.
Bankers are hoping Mr Quarles will reverse the hardline approach to bank oversight — and in particular capital standards — that was developed after the crisis by Mr Tarullo, who was the central bank’s chief regulator but who never formally occupied the vice-chairman role.
Mr Quarles came under questioning from Democrats who accused him of failing to spot the risks that were brewing before the crisis when he served in the Treasury under George W Bush. Mr Otting faced questioning over his role at OneWest, the bank he ran with Treasury secretary Steven Mnuchin, and which has come under intense scrutiny for its foreclosure practices.
Speaking of Mr Quarles, Sherrod Brown, a Democratic senator from Ohio, said “many of his statements leading up to the crisis lead me to wonder whether he was asleep at the switch or wilfully turning a blind eye to Wall Street abuses.”
Mr Quarles said the administration should, in hindsight, have pushed harder to reform the regulatory system during the pre-crisis period.
Elizabeth Warren said she was looking for areas in which Mr Quarles disagreed with the major financial institutions, and she said she was not finding them. “This is not a track record that should give Americans a lot of confidence in you,” she said.
Mr Quarles served as undersecretary for domestic finance in the George W Bush administration, and before that as assistant secretary of the Treasury for international affairs and US executive director of the IMF. He is a founder and managing director of The Cynosure Group, an investment firm in Salt Lake City, Utah.
Mr Quarles had also attracted attention for his advocacy of stricter rules on gauging the right settings for monetary policy. He said in the hearing he was not advocating the adoption of the Taylor Rule — named after the Stanford professor John Taylor — to guide Fed policy.
The Taylor Rule is one of a number of guidelines that can be used to suggest the right monetary policy settings in response to changing economic conditions.
The Fed has vigorously opposed attempts by members of the GOP in Congress to require it to pay closer heed to policy rules, because the central bank argues it needs to retain full discretion in its rate-setting activity.