Trump choice for Fed board says he likes rule change ideas

Randal Quarles, President Donald Trump's nominee for the Federal Reserve Board, says he likes a predecessor's ideas for where regulators should prune banking rules.

At his Senate confirmation hearing Thursday, Quarles said he agreed with recent recommendations of the man he'd replace as the head of bank oversight. The predecessor, Daniel Tarullo, only filled the role informally. Quarles was nominated by Trump and would be the first official vice chair for bank supervision, making him a key player in the president's drive to scale back financial rules.

Quarles was a senior Treasury official under both Bush presidencies and now co-heads an investment firm. He's expected to win approval from the Senate Banking Committee, after which the nomination will go to the full Senate. Confirmation is all but assured.

Tarullo, who'd been appointed a Fed governor by President Barack Obama, had been seen as a tough regulator. Stepping down in April, he said in a speech on rules written under the Dodd-Frank oversight law, "there are clearly some changes that can be made without endangering financial stability."

The Dodd-Frank law, enacted by the Democrats and Obama after the 2008 financial crisis, has been fiercely condemned by Trump in his campaign and by Republicans in Congress. It was intended to restrain major banks — which received taxpayer bailouts after the crisis — from engaging in the kind of reckless actions that ended up costing millions of Americans their jobs and homes.

On Tarullo's wish list: simplifying the so-called Volcker Rule, which bars banks from doing speculative trading on their own account, easing capital-holding requirements for community banks, and revising annual "stress tests" of big banks' health, possibly to cut out parts of them.

"I actually do agree with all of those recommendations," Quarles said.

And he added that he supports greater transparency from the Fed in its regulatory work, such as explaining the "stress tests" to banks more fully.

"As with any complex undertaking, after the first wave of reform, and with the benefit of experience and reflection, some refinements will undoubtedly be in order," Quarles said.

Quarles would have to collaborate in that effort with other Fed officials — notably Chair Janet Yellen — who favor tight regulation to prevent another crisis.

Trump's selection of Quarles marks one of his first efforts to reshape the powerful Fed. He criticized the institution during his campaign for its low-interest rate policies, which he said were helping Democrats. Trump has two other vacancies to fill on the Fed's seven-member board of governors — and likely more to come next year, when the terms of both Yellen and Vice Chair Stanley Fischer expire. Both were appointed by Obama.

Democrats on the committee criticized Quarles' background, saying that as a Treasury official he downplayed risks and gave too rosy a view of the economy and banks' strength in the run-up to the crisis.

"Many of his statements (then) lead me to wonder whether he was asleep at the switch or willfully turning a blind eye to Wall Street abuses," said Sen. Sherrod Brown of Ohio, the panel's senior Democrat.

Quarles acknowledged that "We could have been more aggressive in pushing some of those regulatory changes we wanted to push but believed were difficult politically."