WASHINGTON — Federal Reserve Chair Janet Yellen faced tough questions from lawmakers on Wednesday covering a range of issues, including small bank burden, executive compensation, and living wills at a hearing focused solely on banking regulation.
But perhaps the most important was one she couldn't answer: why was she appearing to discuss these issues rather than a Fed vice chairman of banking supervision, a position the Obama administration has yet to fill? Yellen testified in place of the still vacant spot before the House Financial Services Committee, but nobody, including her, seemed particularly happy about it.
"President Obama has been either unwilling or unable to follow the law and appoint a vice chair," said Rep. Jeb Hensarling, the chairman of the panel. "We can no longer wait for the president to do his job so that we can be allowed to do ours."
When asked repeatedly about why the administration has not filled the position, Yellen said lawmakers "would really have to ask the White House."
"Congress created that position and I would welcome having it filled," she said.
Still, Yellen defended Fed Gov. Daniel Tarullo, who has been effectively filling that role on a de facto business, saying he has "done an outstanding job of leading our work in this area."
Overall, Yellen faced less hostile questions than she does when she testifies on monetary policy, but she encountered skeptical lawmakers on both sides of the aisle with regard to some of the Fed's most recent actions. Following are three other takeaways from the hearing:
Congress is still worried about the impact of Dodd-Frank on regional and community banks.
Both Democrats and Republicans hammered Yellen on what she intended to do to reduce the burden the Dodd-Frank Act is putting on small and mid-sized banks, particularly with respect to the stress testing and resolution planning requirements.
Rep. Robert Hurt, R-Va., argued that though the Fed says it intends to issue its rules in a way that focuses on the largest and riskiest banks, "despite these efforts, community banks have been disproportionately affected."
Yellen defended the Fed's work to tailor its rules to apply as little a burden as possible on banks that pose little systemic risk. But she said that there are some provisions baked directly into Dodd-Frank — requiring stress testing for banks with more than $10 billion in assets, for example — for which the central bank does not get to choose whether or not to pursue.
"We don't have as much ability with respect to stress tests to tailor as I think would be ideal," Yellen said. "That is an area we've been focused on, where we're tailoring as best we can, but some legislative change to reduce the burden on smaller institutions" might be necessary.
But when it comes to raising the $50 billion threshold for banks to face higher standards, Yellen was more coy. Tarullo has said in the past that a threshold of $100 billion might be a greater target, but Yellen said only that a "modest" increase would be sufficient.
"We have said modest increase, not a large increase," Yellen said. "And while I think there would be some benefits to the smaller banking organizations that are over that $50 billion threshold and could save some supervisory resources, this isn't a must-have."
The banking regulators are still nowhere close on the executive pay final rule.
Rep. Michael Capuano, D-Mass., asked Yellen about when the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency are going to complete their rule setting out guidelines for executive compensation — one of the last incomplete requirements in Dodd-Frank.
Yellen balked at the question, offering little in the way of explanation as to why it has taken the agencies so long to complete the rule.
"Who do I have to kick to get this done?" Capuano asked.
"I can't give you a good answer for that," Yellen replied.
Comptroller Thomas Curry said earlier this summer that the agencies were going to re-propose the rule, rather than finalize the previous proposal that has been in limbo since 2011. But Yellen's testimony offered no real insights into what is holding that up.
Banks' "living wills" are far more detailed than previous versions, and responses are likely to be published in early 2016.
Yellen said that regulators' response to the largest banks' resolution plans — known as "living wills" — will likely be published "in the coming months," potentially setting their release to sometime early next year. Yellen also added that the banks whose living wills were deemed "not credible" by the FDIC last year are much more detailed in their 2015 iterations, suggesting regulators have at least seen some improvement.
"We have very detailed living wills, they are much more detailed than previous versions," Yellen said. "They have responded to instructions we carefully gave out, we are carefully evaluating them and we will be making decisions in the coming months."