Trump’s nom­i­nee for Fed’s watch­dog

Ran­dal Quar­les has been a deal­maker and a Trea­sury of­fi­cial.

The Denver Post - - BUSINESS - By Jesse Hamilton

For Ran­dal Quar­les, the 2008 fi­nan­cial cri­sis pre­sented an op­por­tu­nity. Then a Car­lyle Group man­ag­ing di­rec­tor, he hunted through the car­nage of the bank­ing in­dus­try in search of deals and pushed reg­u­la­tors for more lee­way.

Now, the lawyer who once sought to top­ple reg­u­la­tory ob­sta­cles is set to be­come Wall Street’s chief watch­dog, Pres­i­dent Don­ald Trump’s pick as the Fed­eral Re­serve’s vice chair­man of su­per­vi­sion. To the job widely re­garded as the big­gest in bank reg­u­la­tion, Quar­les brings a view that reg­u­la­tion is more likely to be a prob­lem than a so­lu­tion.

Af­ter two stints at Trea­sury and at the law firm Davis Polk & Ward­well, where he worked on merg­ers in­clud­ing the one that cre­ated Jpmor­gan Chase & Co., Quar­les joined Car­lyle, fo­cus­ing on grab­bing stakes in fi­nan­cial com­pa­nies. He helped the pri­vate-eq­uity firm go on a buy­ing spree af­ter the in­dus­try hit bot­tom, mak­ing deals for pieces of sev­eral smaller re­gional banks.

As vice chair­man for su­per­vi­sion, Quar­les would be the pub­lic face of the Fed’s reg­u­la­tion of Wall Street. He would tes­tify twice a year be­fore Congress, up­dat­ing law­mak­ers on the cen­tral bank’s work. Still, un­til Trump can re­place her in Fe­bru­ary, Fed Chair Janet Yellen will have the last say on reg­u­la­tory mat­ters.

Hav­ing spent his ca­reer study­ing the bank­ing busi­ness and reg­u­la­tions, Quar­les de­clared him­self unim­pressed by the 2010 Doddfrank Act, the U.S. re­sponse to the fi­nan­cial cri­sis, call­ing it a “fail­ure of am­bi­tion” and a “con­ces­sion to in­ap­pro­pri­ate pres­sures,” dur­ing a Bloomberg Tele­vi­sion in­ter­view in 2015.

“In some ways, it was not ag­gres­sive enough,” he said. “You could have re­sponded to those pres­sures with a more ag­gres­sive re­struc­tur­ing of the fi­nan­cial reg­u­la­tory struc­ture of the coun­try with­out some of the par­tic­u­lar pro­vi­sions that re­ally just aren’t well-de­signed and

were in­cluded for po­lit­i­cal rather than fi­nan­cial reg­u­la­tory rea­sons.”

As a Fed vice chair­man, Quar­les would be in a po­si­tion to lead a charge against mea­sures in­clud­ing the Vol­cker Rule, which he has cited as an ex­am­ple of Doddfrank’s fail­ings. Trump ad­min­is­tra­tion of­fi­cials have sim­i­larly crit­i­cized that mea­sure, which peo­ple fa­mil­iar with the mat­ter have said is un­der review by the Fi­nan­cial Sta­bil­ity Over­sight Coun­cil, a panel of reg­u­la­tors led by Trea­sury Sec­re­tary Steven Mnuchin. Sev­eral agen­cies, in­clud­ing the Fed, would have to par­tic­i­pate in a re-write.

Trump’s an­nounce­ment of the planned nom­i­na­tion last week — a move that has been floated for months — is “a pos­i­tive sign for big­ger banks as Quar­les should sup­port dereg­u­la­tion,” said Jaret Seiberg, an an­a­lyst with Cowen & Co., in a note to clients.

“I can’t imag­ine sup­port­ing some­body who seems to be so ide­o­log­i­cally aligned with Wall Street, but let him con­vince us oth­er­wise,” Sen. Sher­rod Brown of Ohio, the top Demo­crat on the Bank­ing Com­mit­tee, said in a state­ment. “I think he is go­ing to have a tough fight.”

His ar­rival at the Fed — pend­ing Se­nate con­fir­ma­tion — would in­stall the Trump ad­min­is­tra­tion’s first pick on the seven-mem­ber board of gov­er­nors, where Yellen will con­tinue to con­trol the big-pic­ture agenda un­til her term ex­pires in Fe­bru­ary. Quar­les’ four-year term as vice chair­man would make him the first per­son to hold the ti­tle, es­tab­lished by Dodd-frank to in­crease the pro­file of bank­ing su­per­vi­sion at the cen­tral bank, though he may be the op­po­site of what Demo­cratic spon­sors of the law had in mind.

Mean­while, he might pro­vide some fire­works in another part of the Fed: its role as the ar­biter of U.S. mon­e­tary pol­icy. He would be among the 12 vot­ing mem­bers of the Fed­eral Open Mar­ket Com­mit­tee, and there are rea­sons to be­lieve that Quar­les would sup­port fol­low­ing a for­mu­laic mon­e­tary pol­icy rule.

Ev­i­dence for that lies mainly in a 2015 in­ter­view, in which Quar­les said that “if you’re go­ing to be trans­par­ent in an ac­tiv­ity like the Fed’s, you have to be much more rule-based in what you’re do­ing.”

As a long­time Wall Street lawyer, he was used to push­ing the bound­aries of reg­u­la­tions. Dur­ing a 2005 con­fir­ma­tion hear­ing for a Trea­sury job, he told law­mak­ers that he “helped some of the world’s premier fi­nan­cial in­sti­tu­tions think through their ap­proach to an in­creas­ingly in­te­grated fi­nan­cial sys­tem.”

In 2008, he and another man­ag­ing di­rec­tor at Car­lyle wrote an opin­ion piece for the Wall Street Jour­nal say­ing the pri­vate-eq­uity in­dus­try stood ready to flood cash into banks if they could be given lee­way to in­vest with­out trig­ger­ing the

ad­di­tional de­mands of hav­ing a con­trol­ling in­ter­est. “The Fed­eral Re­serve and other bank­ing reg­u­la­tors can help re­move ob­sta­cles to this im­por­tant pool of cap­i­tal,” they wrote.

Quar­les, 59, left Car­lyle and in 2014 co-founded Salt Lake City-based Cyno­sure Group. The pri­vate-eq­uity firm man­ages money for wealthy fam­i­lies, in­clud­ing that of his wife, Hope Ec­cles. Quar­les brought with him from Car­lyle a stake in Brand Group Hold­ings Inc., a Ge­or­gia bank, which her­alded the Ec­cles fam­ily as a ma­jor in­vestor in a De­cem­ber state­ment.

Two years be­fore the near-col­lapse of the U.S. fi­nan­cial sys­tem — be­fore he left Trea­sury for Car­lyle — he de­liv­ered re­marks sym­pa­thiz­ing with the “un­nec­es­sary reg­u­la­tory bur­dens” on fi­nan­cial firms, say­ing it

was im­por­tant to keep an eye on “elim­i­nat­ing out­dated reg­u­la­tions and un­nec­es­sary re­quire­ments.”

Dur­ing his first stint at Trea­sury, in the early 1990s, Quar­les led a study on re­form­ing the fi­nan­cial in­dus­try that even­tu­ally con­trib­uted to end­ing Glass-stea­gall Act sepa­ra­tion of com­mer­cial banks and in­vest­ment firms. Trump cam­paigned on a call for re­in­stat­ing the De­pres­sion-era law, but his lieu­tenants more re­cently have made clear that they have no in­ten­tion of break­ing up the big banks that formed in its wake.

A spokes­woman at Cyno­sure didn’t re­spond to an email seek­ing com­ment from Quar­les.

“The nom­i­na­tion of Randy Quar­les for vice-chair of su­per­vi­sion rep­re­sents a step back into the past, not a step for­ward,” Marcus Stanley, pol­icy di­rec­tor for Amer­i­cans for Fi­nan­cial Re­form, said in a state­ment. “Quar­les was part of the reg­u­la­tory team at the Bush Trea­sury Depart­ment that missed the on­com­ing 2008 fi­nan­cial cri­sis and failed to take any ef­fec­tive ac­tion to stop that cri­sis.”

Quar­les has made it clear he fa­vors a less in­tru­sive ap­proach.

“The gov­ern­ment should not be a player in the fi­nan­cial sec­tor,” Quar­les said on Bloomberg Tele­vi­sion. “It should be a ref­eree.”

Charles Plosser, for­mer pres­i­dent of the Philadel­phia Fed, called Quar­les a “ter­rific choice” in an in­ter­view on Bloomberg Tele­vi­sion.

“Randy will bring a re­fresh­ing view and not fall in line with the group-think that some­times comes out of Wash­ing­ton,” Plosser said.

Chris Good­ney, Bloomberg News

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