Powell hints Fed will take bigger role in real-time payments
WASHINGTON — Federal Reserve Chairman Jerome Powell said Wednesday that the central bank is nearing a decision on whether to develop its own real-time payments system to compete with industry.
In a press conference, Powell said there is ample precedent for the Fed to have a central role if it so chooses.
“We put out a proposal in October of last year and we got quite a lot of comments that were overwhelmingly favorable,” Powell said. “I would point out that in our payments system, in many places the Fed operates alongside private-sector operators — for example, in wholesale payments, [automated clearing house] and checking. So it wouldn't be unusual or out of keeping with how we've done things in the past.”
Powell added that the agency has been deliberating whether to develop its own payment system and that a final decision on the matter will be announced “soon.”
The Fed has been pulled in opposite directions over the last few months over whether or not to develop its own faster payments network to compete with an existing faster payments network operated by the Clearing House. Smaller banks and lawmakers wary of a private-sector-run network have pushed for the Fed to develop its own system.
The Clearing House and its congressional allies, meanwhile, argue that a Fed-operated system will take too long to implement, will balkanize the national payments system and will not yield the presumed competitive advantages.
Powell also said that the Fed’s board of governors is “not considering” lifting a growth cap on Wells Fargo that it imposed more than 18 months ago over what Powell described Wednesday as “deep-seated issues” related to its risk management practices and various scandals at the bank over the last several years.
“The problems that arose at Wells Fargo around risk management and the way they dealt with the consumer were actually pretty deep,” Powell said. “I think the company realizes that. They haven't been fixed quickly. Frankly, we didn't expect them to be fixed quickly.”
Tim Sloan retired abruptly as Wells Fargo's CEO in March amid harsh criticism from lawmakers of both parties over his handling of the company. Powell said that he could not comment on whether the bank’s lack of a permanent CEO has had any effect on its progress under the enforcement action. But he did say the bank is taking the enforcement action seriously.
“We have an enforcement action in place. The company is working away at addressing it,” Powell said. “They take it seriously. They do see it as we do as something that has to go deep and we'll lift the growth cap when we're satisfied.”
Powell’s comments came as the Federal Open Market Committee decided to lower the federal funds rate 25 basis points to between 2% and 2.25%, the first time the Fed has lowered its interest rate since the financial crisis. In October 2008, the FOMC dropped rates to nearly zero, where they remained until December 2015, after which the Fed gradually raised rates in an effort to normalize monetary policy.
Rob Blackwell contributed to this article.