House Dems: Fed should 'enact protections' instead of deregulating

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WASHINGTON — More than a dozen House Democrats have signed on to a letter to Federal Reserve Chairman Jerome Powell expressing concern about the agency’s moves to roll back post-crisis regulation.

The letter, also addressed to Fed Vice Chair of Supervision Randal Quarles, specifically called out several of the proposals the Fed has put forward this year, accusing the agency of having a “procyclical bias.”

The letter, dated May 13, was first reported by Politico.

The progressive Democrats criticized the Fed board’s vote in March against deploying the countercyclical capital buffer, a regulatory tool that requires banks to hold additional levels of capital in healthier economic conditions.

“The refusal to activate this loss-absorbing equity buffer is a troubling missed opportunity to improve the resilience of the banking sector before the economic cycle turns,” the letter said.

The 13 lawmakers include Reps. Jesus "Chuy" Garcia of Illinois, Rashida Tlaib of Michigan, Nydia Velazquez of New York, Al Green of Texas, Katie Porter of California, Ayanna Pressley of Massachusetts and Alexandria Ocasio-Cortez of New York.

They also voiced disagreement with the Fed’s decision to remove the “qualitative objection” from this year’s stress tests. The qualitative portion of the test has in the past given regulators greater discretion to fail certain banks due to risk management or operational failures.

“Indeed, big banks have substantially improved their capital planning processes in recent years precisely because stress tests had included this ‘qualitative portion,’ ” the letter said. “Eliminating this aspect of the stress tests severely undermines the utility of the annual exercise.”

The letter also took aim at a pair of proposals the Fed put forward in April to reduce the frequency of “living wills” that banks are required to file and to provide regulatory relief for foreign banks that meet a certain capital standard. The lawmakers also criticized a proposal from the Financial Stability Oversight Council in March to change its process for designating nonbanks as systemically important financial institutions, or SIFIs.

“These changes are substantively problematic and are designed to tie FSOC’s hands when using its designation authority to combat systemic risk,” the letter said.

The congressmen also argued that the Fed has gone further than last year’s regulatory relief law required in terms of deregulation, echoing concerns expressed by Fed Gov. Lael Brainard, who has dissented on a number of the agency’s recent proposals. Meanwhile, some components of Dodd-Frank — such as an executive compensation rule — have yet to be implemented, the letter said.

“Rather than using the economic research and regulatory expertise at its disposal to temper the ‘pro-cyclical’ instincts exhibited by the Trump administration and 115th Congress, the Fed is joining with Congress in deregulating major financial institutions and inviting more risky financial activity,” the letter said. “We urge you to reverse course, and enact protections that will prevent another crash.”

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Regulatory relief Regulatory reform Stress tests Living wills SIFIs Jerome Powell Randal Quarles House Financial Services Committee Federal Reserve