WASHINGTON, D.C.—Dennis Kelleher, Co-founder, President and Chief Executive Officer of Better Markets, released the following statement in response to the testimony today of the Chairman of the Federal Reserve, Jay Powell, before the Senate Banking Committee:
“Federal Reserve Chairman Jay Powell’s statements today before the Senate Banking Committee about deregulation during his tenure were incomplete and imprecise if not inaccurate.
“When questioned about weakening bank capital requirements, the Fed’s stress test and living wills, Chair Powell denied that this was even the case. Specifically, he said, “the severity of the stress test has very much been maintained” and “we did not weaken capital requirements for the largest banks.” He also failed to answer a direct question about his weakening of the living will process.
“The stress test program has been seriously weakened by, among other things, the removal of two key components: the inclusion of dividend payouts and a growing balance sheet. The deregulatory changes to the stress test program not only distort the picture to the public of the resiliency of the banking sector to severe stress, but it has also dangerously lowered stress-based capital requirements for the country’s largest banks. And they have lowered the overall capital requirements for banks between $250 and $750 billion, banks that are large and critical to the economy and the American public.
“Despite this, Chair Powell said that current levels of capital and liquidity at the largest banks are “right” and pointed to their ability to remain well capitalized and even raise capital over the pandemic. Those claims ignore two key facts. First, the only reason the banks had capital and liquidity in the first place is that they were forced to by regulators over the unrelenting lobbying of those same banks, as detailed in this Report. Second, the trillions of dollars his own Fed has pumped into markets and the help to the economy provided by Congress bolstered bank balance sheets and allowed them to build the capital Chair Powell refers to. Ironically, that very capital is now being depleted because the Fed is allowing those very same banks to massively increase dividends and share buybacks.
“Moreover, the living will process has been weakened by, among other things, reducing the frequency of the submissions for the largest banks and eliminating the requirement entirely for others. Making large banks more resolvable is of critical importance, and the loss of momentum of the resolution planning regime is a considerable setback.
“Weakening capital requirements, stress tests, and living wills, among other deregulation under Powell’s Chairmanship, have made the financial system less safe and makes another crash and taxpayer bailouts more likely, as comprehensively detailed in this Report.
“None of that is to say that Chair Powell should or should not be reappointed as Chairman. However, his poor record on the deregulation of the banking industry must be considered as part of a searching and comprehensive examination of his entire performance as Chair, along with the Fed’s response to the 2020 pandemic-caused financial crash, monetary policy, the climate, racial justice and inequality crises, and Fed’s public transparency and accountability. Given that the Federal Reserve is, in key respects, the Supreme Court of financial and economic policymaking, to do otherwise would be a disserve to the American people and, in fact, the President himself.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.