Yellen: Fed Should Make Sure Bank Rules Aren't Too Burdensome -- Update

By Harriet Torry Features Dow Jones Newswires

ST. LOUIS -- Federal Reserve Chairwoman Janet Yellen voiced support for making sure bank rules aren't unduly burdensome, underscoring her potential flexibility on postcrisis financial regulation as President Donald Trump weighs whether to nominate her for a second term as central bank chief.

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"The Fed has been working hard to ensure that its regulation and supervision of banks are tailored appropriately to the size, complexity and role different institutions play in the financial system," she said Wednesday at a community banking conference here.

"For community banks, which by and large avoided the risky business practices that contributed to the financial crisis, we have been focused on making sure that much-needed improvements to regulation and supervision since the crisis are appropriate and not unduly burdensome," she said.

Her comments largely echoed her previous remarks that the Fed is open to reducing some of the regulatory burden on banks, particularly smaller ones.

Ms. Yellen spoke as uncertainty swirls over who will run the world's most powerful central bank after her current term as chairwoman expires in early February. She didn't comment on her plans. Nor did she discuss the likely path of interest rates or the economic outlook.

Mr. Trump told The Wall Street Journal in July he was considering Ms. Yellen or his top economic adviser Gary Cohn for the top Fed job. The president also met with Fed governor Jerome Powell and separately with former Fed governor Kevin Warsh last week to discuss their possible nomination to run the central bank, according to administration officials. Other names said to be in contention for Fed chairman include Stanford University economist John Taylor and John Allison, the former BB&T Bank chief executive, according to people familiar with the process.

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The Trump administration is spearheading an effort to roll back some of the financial regulation adopted after the financial crisis. Ms. Yellen has defended many of those measures, but her remarks Wednesday served as a reminder that she has expressed openness to adjusting some.

She called attention to recent steps by the Fed and other federal agencies to cut red tape by simplifying several regulatory requirements.

Ms. Yellen last week cast a key vote in favor of releasing American International Group Inc. from federal oversight. She said in a statement Monday that "since the financial crisis, AIG has largely sold off or wound down its capital markets businesses, and has become a smaller firm that poses less of a threat to financial stability."

The Financial Stability Oversight Council of senior financial regulators released the insurer -- which received a financial-crisis bailout of more than $180 billion -- from its designation as a "systemically important financial institution" in a divided vote last week.

The Trump administration is set to gain more influence over financial regulation as it fills numerous open positions at the Fed and other agencies. The Senate is expected to vote as early as Thursday to confirm Trump nominee Randal Quarles, a former Treasury official in the George W. Bush administration, to join the Fed's board of governors.

Mr. Quarles is the president's pick for vice chairman for supervision at the Fed, but the Senate may have to hold another vote to formally give him that title. However, he likely could serve informally in that role until the Senate acts again.

Mr. Quarles, an investment-fund manager, is expected to be a more industry-friendly voice among the country's top bank regulators. He told lawmakers in July that postcrisis financial rules require "some refinements" and said he would be open to revisiting the Volcker rule, which bans banks from certain types of trading and investing.

Mr. Trump has two more vacancies to fill on the seven-member Fed board and another will open this month with the planned departure of Fed Vice Chairman Stanley Fischer.

Mr. Trump said Friday he would announce his pick for Fed leader within three weeks.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 04, 2017 18:14 ET (22:14 GMT)