WASHINGTON — Federal Reserve Board Vice Chairman Stanley Fischer's surprise decision to resign in mid-October will enable President Trump to more rapidly reshape the Fed, paving the way for it to roll back post-crisis reforms.
Fischer's departure will leave four vacancies on the seven-member Fed board. Trump's first Fed nominee, Randal Quarles as vice chairman of banking supervision, is expected to be approved by the Senate Banking Committee on Thursday, and he is likely to clear the full Senate soon thereafter. Once Trump's remaining three nominees are named and confirmed, his picks will represent a majority of the Fed board.
That is likely to speed efforts to ease restrictions put in place after the Dodd-Frank Act, including the Volcker Rule, analysts said.
"That should bode well for advancing regulatory relief measures related to the Volcker Rule and capital requirements," wrote Jaret Seiberg, a policy analyst at Cowen Group. "We see the resignation as broadly positive for regional banks and mega banks."
Consumer advocates expressed dismay at the departure of Fischer, who said in his resignation letter he was leaving for "personal reasons." His term as vice chairman was not due to expire until June 2018, and his term as governor lasts until 2020.
"Gov. Fischer’s resignation dramatically alters the balance of federal bank regulation and imperils the safeguards erected following the financial crash of 2008," said Bartlett Naylor, financial policy advocate for Public Citizen. "Trump’s nominees can demolish the already fragile rules written to implement the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act."
Some observers said the Fed may try to rush out rules before another Trump official is added to the board. Karen Shaw Petrou, managing partner of Federal Financial Analytics, pointed to a pending regulation concerning adding a capital surcharge for the largest global systemically important banks,
“The one Chair Yellen is determined to enact, but is highly controversial, is the G-SIB surcharge in CCAR" stress tests," Petrou said.
During a June hearing Sen. Sherrod Brown, D-Ohio, expressed concern that the Fed may wait for the Administration to fill empty seats on the Fed board before finalizing the capital surcharge rule for the Comprehensive Capital Analysis and Review stress tests.
“I'd like to encourage you to” finish the rule “as quickly as possible,” Brown told Fed Gov. Jerome Powell, who currently oversees banking regulation at the Fed.
Quarles, who was nominated to take over that role, wouldn't say whether he supported the G-SIB rule during his July confirmation hearing, but a Treasury Department report released in June said it should be reviewed. If Quarles is confirmed by the Senate before the rule is released, it could be further delayed or potentially scrapped altogether.
Fischer’s resignation will also have a profound impact on monetary policy, where Fischer has been seen as a steadying hand during a tricky time.
“Stanley Fischer joined the Federal Reserve in 2014 to help Janet Yellen guide monetary policy during what some feared would be a turbulent period with the ending of Quantitative Easing and raising of interest rates. On that front, we give the two credit as the Federal Reserve has gradually withdrawn support without causing interest rates to spike or the economy to unravel,” wrote Seiberg.
Much of the Fed's agenda will ultimately be determined by its next leader. Yellen's term as chair — though not as governor — is set to expire in early 2017, giving Trump the opportunity to pick a new central banker. Trump has indicated that he may renominate Yellen, though he's also openly contemplated picking Gary Cohn, his director of the National Economic Council. Cohn's chances are thought to have gone, however, since he openly criticized Trump following the president's reaction to white supremacist violence in Charlottesville.