Yellen defends bank regulations

Fed chair’s speech could lessen likelihood of reappointment.

JACKSONHOLE, WYOMING— Federal Reserve Chair Janet Yellen on Friday emphatically defended the web of regulations the Fed helped enact after the 2008 financial crisis, saying it helped restore the banking system’s health, and disputed criticism that the rules have hurt lending.

Yellen said the Fed is prepared to adjust the regulations as needed to help financial institutions. But in a speech to an annual conference of central bankers in Jackson Hole, she implicitly rejected efforts by Republicans, including President Donald Trump, to scrap the 2010 Dodd-Frank law as a threat to the economy.

The Fed chair refrained from remarking on the state of the economy or on the possible future course of interest rates. Investors had been awaiting her speech for any signals about what the Fed might do when it meets next month. The central bank has been gradually raising its benchmark short-term rate, but most Fed watchers expect no rate hike before December.

Overhanging Yellen’s speech was the possibility that it marks her final appearance in Jackson Hole as Fed chair. Her termas chair will end in February, and Trump has made clear he is considering replacing her. One candidate he has mentioned is Gary Cohn, a former Goldman Sachs senior executive who leads Trump’s National Economic Council.

Some saw Yellen’s forceful defense Friday of the regulatory structure imposed on banks since the 2008 crisis as further lessening the likelihood that Trump will reappoint her.

Sal Guatieri, senior economist at BMO Capital Markets, said Yellen’s speech “puts her at odds with Trump’s deregulation mandate, which could weigh against her remaining as chair when her term expires early next year.”

Paul Ashworth, chief U.S. economist at Capital Economics, said that “Yellen’s passionate defense of the post-crisis tightening of financial regulation isn’t going to go down particularly well at the White House” and that it probably makes it less likely that Trump will re-nominate her.

In her speech, Yellen noted that the U.S. and global financial systems were “in a dangerous place 10years ago.” Yellen said the Dodd-Frank Act has produced a far safer banking system, especially with banks required to hold much higher levels of capital, the cushion against losses from bad loans.