NEW YORK – In the wake of President-elect Donald Trump's vow to revisit the post-crisis financial system, regulators appear open to making changes, but cautious about how far to go.

Speaking at the Clearing House Association's annual conference, Office of Financial Research Director Richard Berner said that it makes sense to take a holistic evaluation of the regulatory regime that has come into place since the financial crisis and determine whether those parts work individually and together.

"The answer has to be to step back and look at the regulations that we have and evaluate them," Berner said on Tuesday. "To do studies that evaluate the policy framework step by step and [ask] in each case, Do we have a policy framework that meets our needs?"

But in a speech a day later at the same venue, Comptroller of the Currency Thomas Curry warned against taking such efforts too far.

"Now is not the time to change course or weaken the protections and safeguards we have put in place since the last crisis," Curry said. "We cannot return to the same practices and weaker safeguards that resulted in the crisis we experienced in 2008."

The two views are not necessarily incompatible. Curry acknowledged that the Trump administration will be able to give a fresh look to the post-crisis system, while Berner also warned against overreacting.

Berner said that regulators may not have been sufficiently aware of – or considerate of – the effect that new capital and liquidity rules might have had on banks' core business, focusing instead purely on maximizing financial stability.

"When you look at what's going on in the banking industry, is that resilience reflected in their ability to thrive as businesses – their ability to attract capital from investors, and earn a return on it?" Berner said. "For quite some time, that has not been completely the case. I would argue that, while we have made the system more resilient, we as policymakers need to think about some of those other metrics."

Andreas Lehnert, deputy director of the Federal Reserve's Financial Stability Program Direction Section, agreed, saying that it may be an appropriate time to reconsider what in the post-crisis financial regulatory machine is working and what is not, and to be willing to make big changes is that turns out to be warranted.

"I'm going to agree with … what I guess is the prevailing view on this panel, which is that there is absolutely scope for … revisiting the whole suite of post-crisis financial rules and asking whether they are operating as intended," Lehnert said. "Maybe this isn't the time for marginal improvements; the smell of deep fundamental improvements is in the air."

Yet Curry also sounded warnings that "we must remain vigilant about the levels of capital and liquidity in good times so they will be there to serve as a bulwark during the next recession."

"Now is not the time to let our guard down," Curry said. "Those who have been in this business for more than one cycle know a downturn will come. Effective regulation and supervision will help ensure that the trough will not be so deep or so wide. Those who forget or choose to ignore the lessons of the last crisis do so at their own peril and increase the risk to all of us."

Other regulators emphasized that the agencies have already taken steps to ensure new rules did not have unintended consequences.

Michael Gibson, director of the program direction section of the Federal Reserve's Banking Supervision and Regulation Division, noted that the central bank recently issued a proposal to limit the qualitative assessment of its annual stress tests for all but the largest banks, and that reconsideration is something the Fed intends to continue.

"That is one area where we did see something where … an adjustment was appropriate, but can still achieve the supervisory goal of sound capital planning ... in a way that will allow resources to be freed up and used elsewhere," Gibson said. "That's a continual process."

The debate comes at a time of uncertainty for the financial services industry – and divisions among bankers themselves over how many changes are necessary.

The prevailing alternative to Dodd-Frank – as embodied by the Financial Choice Act, from House Financial Service Committee Chairman Jeb Hensarling, R-Texas – would simplify the post-crisis regime by forgoing most of the more specific capital and liquidity standards in favor of a single, higher leverage-based capital requirement.

But that framework has its own challenges, said Douglas Elliot, partner with Oliver Wyman. Risk-weighted capital regimes are meant to discourage – or at least disincentivize – riskier investments in favor of less-risky ones. If a simple leverage ratio becomes the binding constraint on banks, that disincentive goes away, and banks will search for ever-higher yields through ever-riskier transactions.

"I worry about the extent to which the leverage ratio, which is risk-blind, becomes the binding constraint for many banks," Elliot said. "To the extent that happens, we're pushing banks into riskier business just to try to get back up to an ROE that's acceptable."

Aaron Klein, a fellow with the Brookings Institution, agreed, saying there needs to be both risk-based and overall leverage capital rules in place in order to complement each one's blind spots.

"I think of risk-based and leverage rules as chopsticks," Klein said. "With two, you can eat a lot. With one, you're just stabbing at it."

Citigroup Treasurer James von Moltke said there is also a danger in throwing out the baby with the bathwater. The fundamental elements of Basel III and Dodd-Frank – resolution, capital rules, liquidity rules and the like – are necessary and not especially controversial, he said. It is the more nuanced application of those rules that has generated the most difficulty, and it is important for stakeholders to keep sight of that.

"They're all fundamentally very good and healthy for the industry," von Moltke said. "In the grand scheme, I don't think the argument is around the big thrust of regulation. But I do think that there's a lot in the details that is potentially unnecessarily, unintentionally painful, and so an interesting question is whether it's going to be possible to open up some of the rules for these microchanges."

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