Fed's Yellen Defends Postcrisis Regulations in Jackson Hole -- Update

By Ben Leubsdorf and Kate Davidson Features Dow Jones Newswires

JACKSON HOLE, Wyo. -- Federal Reserve Chairwoman Janet Yellen defended the sweeping financial regulations enacted in the wake of the financial crisis that began a decade ago, while keeping the door open to modest changes to the postcrisis rules.

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"The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth," Ms. Yellen said Friday in a speech prepared for delivery at the U.S. central bank's annual late-summer retreat in Grand Teton National Park.

But, she added, the Fed is "committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system."

For the third time in four years, Ms. Yellen delivered the opening address at the economic policy symposium, which is hosted by the Federal Reserve Bank of Kansas City. The theme of this year's conference is "Fostering a Dynamic Global Economy."

It could be her final appearance at the Jackson Lake Lodge as the Fed's leader, since her term is up in early February. President Donald Trump has said she is among the candidates he is considering for the post; another is Mr. Trump's National Economic Council director, Gary Cohn. The job requires confirmation by the Senate, where Republicans hold a slim majority.

The Trump administration has made rolling back federal regulations a priority, and Republicans have long been critical of the 2010 Dodd-Frank financial overhaul law enacted in the wake of the 2007-09 crisis and recession.

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"I have so many people, friends of mine, that had nice businesses. They can't borrow money," Mr. Trump said in February. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank."

Mr. Trump has nominated Randal Quarles, an investment-fund manager and ex-Treasury official, as the Fed's vice chairman of supervision, a powerful post that was created in 2010 but never formally filled by President Barack Obama. Daniel Tarullo, a Fed governor who de facto held the job, resigned earlier this year.

Mr. Quarles, who told lawmakers last month that postcrisis financial rules require "some refinements," is awaiting confirmation by the Senate.

Ms. Yellen, in her Friday speech, said the postcrisis financial overhauls were a necessary response to the events of last decade and have left the U.S. financial system "substantially safer" and better positioned to absorb future shocks without causing a broad economic downturn.

"Because of the reforms that strengthened our financial system, and with support from monetary and other policies, credit is available on good terms, and lending has advanced broadly in line with economic activity in recent years, contributing to today's strong economy," she said.

She did acknowledge concerns that the postcrisis rules might have restrained some lending and liquidity and held back overall economic growth, but said many factors likely are at work. She said the Fed is committed "to evaluating the effects of financial market regulations and considering appropriate adjustments."

She also said that "a broader set of changes to the new financial regulatory framework may deserve consideration. Such changes include adjustments that may simplify regulations applying to small and medium-sized banks and enhance resolution planning."

In Friday's remarks, Ms. Yellen didn't discuss the outlook for economic conditions or monetary policy.

Ms. Yellen isn't the only central banker weighing the costs and benefits of postcrisis rules as the Trump administration and congressional Republicans seek to roll back many of those regulations. Fed governor Jerome Powell told lawmakers in June that it could be appropriate to ease annual stress tests for big banks. Fed Vice Chairman Stanley Fischer, however, has been vocal in arguing that it would be dangerous for the U.S. government to jettison those measures.

"It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis," Mr. Fischer told the Financial Times in an interview published last week. "And I find that really, extremely dangerous and extremely shortsighted."

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

August 25, 2017 10:26 ET (14:26 GMT)