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January 29, 2020

The Shocking Attack on Bank Supervision by the Fed’s Vice Chair for Supervision

Press Release | The Shocking Attack on Bank Supervision by the Fed’s Vice Chair for Supervision

The Federal Reserve failed miserably in the years before the 2008 crash.  The facts are pretty clear that the crash could have been largely avoided, or at least substantially reduced in severity, if the Fed had even done a modest job in monetary policy, regulation or supervision in the years before the crash.  Instead, it failed at all three. It was a cheerleader for deregulation and the benighted view that the biggest, most systemically important profit- and bonus-maximizing banks knew best and should be able to regulate themselves.

The catastrophic 2008 crash – the worst since the Great Crash of 1929 – proved those views and policies totally wrong and the American people paid a devastating price.  The so-called Great Recession was the worst economy since the Great Depression of the 1930s and it robbed tens of millions of Americans of their jobs, homes, savings and so much more, as detailed in our Cost of the Crisis Report.

To make sure such a calamity never happened again, the Dodd-Frank financial reform law was passed, which created a Vice Chairman of Supervision at the Federal Reserve Board.  However, ignoring those recent painful lessons and, indeed, not even mentioning the crash or suffering of the American people, the Vice Chair for Supervision delivered a speech (on a Friday afternoon before a three-day holiday weekend as Congress left town for recess) that reflected the wish list of those very same gigantic Wall Street banks, who would like to return to the incredibly profitable pre-crash days of non-regulation and non-supervision.

The Vice Chairman proposed a dramatic weakening of the way the Fed supervises the largest, most dangerous and most systemically significant banks in the country.  He even proposed to have Congress micro-manage the Fed’s supervision.  He was more serious than people realized last year when he was quoted as saying, “[changing the supervision culture] ‘will be the least visible thing I do and it will be the most consequential thing I do,’” in an article entitled “Banks Get Kinder, Gentler Treatment Under Trump.”  Another article captured what is going on here: “Wall Street Reformers Stunned by New Supervisory Proposals from Fed’s top Bank Regulator.”

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