Federal Reserve governors Philip Jefferson and Lisa Cook said that any updates to bank regulations following the collapse of four lenders this spring should be tailored according to an institution’s size.
(Bloomberg) — Federal Reserve governors Philip Jefferson and Lisa Cook said that any updates to bank regulations following the collapse of four lenders this spring should be tailored according to an institution’s size.
Jefferson and Cook, speaking before the Senate Banking committee Wednesday in a nomination hearing, said the Fed is continuing to monitor bank liquidity and rate-risk provisions and reiterated that the sector is sound and resilient. They also both raised concern about consolidation among lenders and emphasized the importance of smaller institutions to low- and moderate-income communities.
“I agree with tailoring — that they should not have to be burdened by the same requirements that large banks are, and that they should be able to thrive in these communities without the burden of significant regulation,” Cook said of small banks.
The collapse of Silicon Valley Bank in March ignited concern of more widespread problems in the banking sector, especially amid the Fed’s rapid interest-rate increases. Policymakers raised rates to a range of 5% to 5.25% over the last 15 months in an effort to cool inflation. The failure to properly account for that increase in rates in part led to SVB’s failure.
Fed Vice Chair for Supervision Michael Barr is conducting a review of bank regulations and is expected to propose a revamp of some rules later this year.
“As we think about capital requirements, I will always be thinking about that trade-off between making banks more resilient and sound and credit availability,” Jefferson said. “I think we have to deal with always grappling with the trade-offs between those two things in setting the right level of capital.”
Jefferson was nominated by President Joe Biden to the vice chair position at the Fed, while Cook was named to a new 14-year term as her current one expires in January. They appeared before the Senate Banking committee today along with Adriana Kugler, an economist and the US representative to the World Bank that Biden nominated to a vacant governor position at the central bank.
All three nominees were also asked extensively about inflation. Kugler said there are times when one aspect of the Fed’s dual mandates of stable prices and maximum employment becomes more important than the other.
“Right now, the inflation side is critical,” Kugler said. “It is very important to continue to bring down inflation to its 2% target. I’m committed to that.”
Cook and Jefferson echoed Kugler’s remarks on the importance of bringing inflation down to the Fed’s 2% goal.
Nominees’ Support
While lawmakers from both political parties expressed support for Jefferson, who was overwhelmingly confirmed in the Senate to his governor position last year, some Republicans were concerned about Cook and Kugler’s nominations, in particular. Senator Tim Scott, the ranking member of the committee, said there are signs Cook and Kugler want to imbue policy with their personal ideologies.
Republican Mike Rounds of South Dakota, who voted against Cook’s confirmation last year, said he’s had several visits with her and is considering supporting her nomination this time.
“She’s been a good member of the Fed so far,” he said. “So I’ll consider her.”
Cook’s confirmation last year passed on a party-line vote, with President Kamala Harris casting a tie-breaking vote in the then-50-50 Senate. Democrats now have a slim majority.
Other Republicans, including Kevin Cramer of North Dakota and Bill Hagerty of Tennessee, said they likely wouldn’t support Cook but were still undecided on Kugler.
If confirmed, Kugler would become the first Latina leader at the Fed in its 109-year history. Senator Robert Menendez, who long pressed Biden to nominate a person of Latino heritage to the central bank, praised her selection.
“Today, we are taking momentous steps and are writing history in real time,” Menendez said.
Chairman Sherrod Brown expressed optimism that the slate of nominees would win Senate approval, despite some expected GOP opposition.
“We’re going to confirm them, just like we did last time,” Brown said after the hearing.
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