Yellen warns against erasing regulations
GRAND TETON NATIONAL PARK, Wyo. — Janet Yellen, the Federal Reserve chair, delivered a broad rebuttal Friday to Republican criticism that financial regulation is impeding economic growth.
Yellen said changes since the global financial crisis, which began a decade ago, have significantly improved the resilience of the financial system.
“The events of the crisis demanded action, needed reforms were implemented and these reforms have made the system safer,” Yellen said in remarks prepared for delivery Friday morning at an annual monetary policy conference here.
The speech amounted to a warning to the Trump administration, which is pressing regulators to loosen or remove some of those regulatory changes.
“Already, for some, memories of this experience may be fading — memories of just how costly the financial crisis was and why certain steps were taken in response,” Yellen said.
Yellen’s forceful support for financial regulation may complicate her prospects for renomination as Fed chair. Yellen’s fouryear term ends in February, and President Donald Trump has said he is considering whether to name someone else in her place. Gary Cohn, Trump’s chief economic adviser, whom Trump has described as a candidate for Yellen’s job, is an architect of the administration’s regulatory plans.
Also Friday, European Central Bank President Mario Draghi saif the global economy is strengthening but warns that countries must work together to resist a growing backlash against open trade.
Draghi is telling an annual conference of central bankers that multi-lateral cooperation is crucial to reassuring workers who worry that free trade puts
their jobs at risk. He says advanced economies must work to ensure that an open global economy preserves fairness, safety and equity for workers.
Yellen rarely spoke about regulatory issues during the early years of her tenure as chairwoman, but has addressed the topic with regularity since Trump became president. She has argued consistently that changes were needed after the financial crisis and that those changes should not be reversed.
On Friday, she cautioned several times against overconfidence in the health of the financial system. She noted, for example, that policymakers gathered here a decade ago were optimistic about the resilience of the system — which was even then in the process of falling apart. One goal of the changes enacted since the crisis is to guard against problems that regulators do not anticipate.
Yellen said large banks have shifted to a more stable mix of financing.
“Reforms have boosted the resilience of the financial system,” she said. “Banks are safer.”
Yellen extended an olive branch to the Trump administration, saying that the Fed was committed to reviewing the impact of regulations and that it saw specific areas with room for improvement. Fed officials have said repeatedly that they would like to reduce the regulatory burden on smaller financial institutions.
“The Federal Reserve is committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system,” she said.
Yellen said regulators also should review restrictions on investment activity by banks, including the Volcker Rule that limits speculative investments.
But there are clear limits on how far she thinks the Fed should go.
Randal Quarles, nominated by Trump last month as the Fed’s vice chairman for supervision, said at his confirmation hearing that there is a need to relax some of the strictures placed on the financial industry since the crisis. He mentioned specifically the Fed’s annual stress testing of large banks.
Yellen said Friday that stress testing “has contributed to significant improvements in risk management.”