Yellen defends post-crisis financial rules

Federal Reserve Chair Janet Yellen

(pictured) said any rollback of post-crisis financial reforms should be “modest” because they’ve made the banking system safer and more resilient without unduly diminishing the supply of credit to the economy. Yellen on Friday issued her broadest defence so far of the government’s response to the 2008 financial-market meltdown, while outlining some areas that regulators could review to improve efficiency in the financial system.

Federal Reserve Chair Janet Yellen said any rollback of post-crisis financial reforms should be “modest” because they’ve made the banking system safer and more resilient, rebutting Republicans in Congress and the White House who blame regulatory red tape for holding back the US economy.

Yellen, speaking in Jackson Hole, Wyoming, on Friday, issued her broadest defence so far of the government’s response to the 2008 financial-market meltdown while outlining some areas that regulators could review to improve efficiency in the financial system.

“Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years,” Yellen said, in what could be her final speech as Fed chair at the annual gathering of central bankers. Her term expires in February. President Donald Trump could offer to nominate her for a second term, but economists polled by Bloomberg expect him to chose someone else.

In a 19-page speech that was almost entirely focused on financial regulations, Yellen did make a brief reference to the economy, noting that “substantial progress has been made toward the Federal Reserve’s economic objectives of maximum employment and price stability.”

Stocks held gains and the dollar fell with Treasury yields as her remarks lacked fresh guidance on interest-rate policy. The Federal Open Market Committee is scheduled to next meet Sept. 19-20. Investors don’t expect the Fed to raise rates, according to pricing in federal funds futures contracts, though an announcement on the gradual unwinding its $4.5 trillion balance sheet is anticipated after comments by several policy makers.

Yellen said some aspects of the Volcker Rule, which limits proprietary trading by banks, may be simplified while the Fed is taking steps to reduce “unnecessary complexity” in regulations affecting small banks. More broadly, however, Yellen said the reforms have made the financial system stronger.

“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,” she said. Yellen’s remarks could put her at odds with the Trump administration, which issued a Treasury Department report in June that called for “significant changes” to the Volcker Rule. Trump has made deregulation a pivotal part of his agenda for the financial industry, with the president and his advisors repeatedly blaming the Dodd-Frank Act for stifling lending and economic growth.

ANY ADJUSTMENTS TO THE REGULATORY FRAMEWORK SHOULD BE MODEST AND PRESERVE THE INCREASE IN RESILIENCE AT LARGE DEALERS AND BANKS ASSOCIATED WITH THE REFORMS PUT IN PLACE IN RECENT YEARS” JANET YELLEN, Federal Reserve Chair