Financial rules have made US economy stronger — Yellen
JACKSON HOLE (Reuters) – Reforms put in place after the 2007 to 2009 crisis have strengthened the financial system without impeding economic growth and any changes to these rules should remain modest, Federal Reserve chair Janet Yellen said Friday in her fullest defense yet of the regulations enacted after the Great Recession.
“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," the Fed chair said at an annual central bank research conference.
Yellen's remarks amount to a broad defense of the existing regulatory framework, and an implicit rebuke of US President Donald Trump's desire to drastically lighten the oversight of the financial sector in a bid to boost the economy.
They also may amount to her parting view on financial rules, as Trump considers whether to renominate Yellen to another four-year term as head of the central bank, with her current term expiring in February.
“She is sort of putting a stake in the ground here in terms of this regulation issue, which is the one sort of sticking point between her and Trump right now,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Yellen acknowledged some possible changes to individual regulations may be warranted, specifically mentioning possible relaxation of the Volcker rule limit on banks' equity trading, and further relaxation of rules that apply to mediumsized and smaller banks. Steps may be needed, she agreed, to improve liquidity in parts of the bond market, though that system remained "robust."
But she also defended several financial rules that have come under scrutiny by top Trump administration officials and leading Republicans in Congress. Specifically, Yellen defended the annual stress testing of large banks, allowing regulators to assign stricter oversight to firms critical to the financial system, and permitting regulators to step in and wind down failing financial institutions.