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Federal Reserve and FDIC Chairs Warn Wall Street Push for Looser Rules Threatens Stability

Tuesday, August 29, 2017
Deborah Goldstein

Fed Chair Yellen, Vice Chair Fischer, FDIC Chair Gruenberg, and European Center Bank President Draghi Defend Safeguards Enacted After Financial Crisis

WASHINGTON, D.C. – Today, the Center for Responsible Lending (CRL) highlighted that central bank leaders and the Chair of the FDIC have recently sounded the alarm over proposals to eliminate regulatory safeguards established after the financial crisis and refuted the claim that these protections have been a significant drag on economic growth and lending. The House of Representatives has already passed legislation that would roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act and defang the Consumer Financial Protection Bureau (CFPB), and it passed a bill that would rescind the CFPB’s rule banning forced arbitration.

"These forceful warnings from usually reserved independent officials reflect the growing threat that Congress and this Administration will rip up the rules that protect American families from a repeat of the last financial crisis," said Debbie Goldstein, Executive Vice President at CRL.

Excerpts from Federal Reserve Chair Janet Yellen’s remarks at the Fed’s high-profile economic symposium held in Jackson Hole, Wyoming a few days ago:

"Already, for some, memories of this experience may be fading -- memories of just how costly the financial crisis was and of why certain steps were taken in response...

"As a result, any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years...

"Our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks, as has been illustrated during periods of market turbulence in recent years. Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad...

"The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth.”

In an interview with the Financial Times, where he was described as "self-effacing,” "courtly, quietly spoken and unobtrusive,” Federal Reserve Vice Chair Stanley Fischer said:

"I am worried that the U.S. political system may be taking us in a direction that is very dangerous. It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really, extremely dangerous and extremely short-sighted...

"[T]he pressure I fear is coming to ease up on the large banks strikes me as very, very dangerous.”

In remarks last week, FDIC Chair Martin Gruenberg announced data showing banks again posted record earnings, argued that they have not been held back by regulations, and said:

"The bottom line is the industry remains in pretty good shape and is a source of strength and stability for the economy...

"I would be very cautious about making adjustments to [the supplementary leverage ratio].”

At the Jackson Hole symposium, European Central Bank President Mario Draghi said:

"There is never a good time for having lax regulation. Any reversal would call into question whether the lessons of the crisis have indeed been learned.”