Top U.S. banking regulators are sprinting to ease the Volcker Rule, stress tests and other constraints on Wall Street.Mark Lennihan/The Associated Press
Top U.S. banking regulators are sprinting to ease the Volcker Rule, stress tests and other constraints on Wall Street after the Trump administration issued a long list of proposals last week for rolling back postcrisis financial rules.
Federal Reserve Governor Jerome Powell and acting comptroller of the currency Keith Noreika told lawmakers on Thursday that they support revamping key regulations. Both mentioned their agencies are open to rethinking Volcker's trading restrictions and reducing the burden of the annual exams that evaluate banks' ability to weather severe economic shocks.
"We should assess whether we can adjust regulation in common-sense ways that will simplify rules and reduce unnecessary regulatory burden without compromising safety and soundness," Mr. Powell said in his testimony to the Senate Banking Committee, arguing this is less about deregulation than improving the efficiency of existing rules.
While Mr. Powell currently oversees bank regulation at the Fed, he's expected to give up that role once U.S. President Donald Trump nominates a vice-chairman of supervision and the Senate confirms the selection.
Mr. Noreika – another regulator who is expected to be temporary – issued a sweeping list of recommendations to streamline oversight in a way that shifts some duties to his Office of the Comptroller of the Currency. Mr. Noreika argued in his testimony that the various banking regulators too often overlap, stunting economic growth by making duplicative and contradictory requests to lenders.
He said his ideas have been influenced by a report the Treasury Department issued on June 12 that proposed a series of regulatory rollbacks. Attacking rules has been a top priority for Mr. Trump, who has called the 2010 Dodd-Frank Act a disaster that's made it extremely difficult for companies to get loans.
Democrats on the panel attacked the Treasury report, with Massachusetts Senator Elizabeth Warren saying the ideas were "basically cut and pasted from the banking industry's lobbying priorities." Ohio Senator Sherrod Brown called it a "misguided" attempt to grant Wall Street's wish list.
Mr. Noreika – set to be replaced if the Senate confirms the president's OCC nominee, Joseph Otting – said smaller national banks could be solely overseen by his agency rather than having the Fed also supervise each firm's holding company; that new banks earning OCC charters shouldn't need separate approval from the Federal Deposit Insurance Corp. to get their deposits insured; and that the Consumer Financial Protection Bureau's supervision of certain lenders should be shifted back to the banking regulator.
"We need to avoid imposing unnecessary burden and creating an environment so adverse to risk that banks are inhibited from lending and investing in the businesses and communities they serve," he said.
Mr. Powell said the Fed will go back to recent regulations and "clean up" its work. Key in that will be Volcker, which restricts banks from making speculative market bets with their own capital and investing in certain funds. Mr. Powell called it an example of a rule "implemented in a way that's too costly" and that goes beyond what Dodd-Frank called for. He said the regulators have room to "do a lot" in rewriting how the rule defines banned proprietary trading and how it maps out limits on investments in private-equity and hedge funds.
Mr. Noreika said he strongly supports a "full review" of Volcker and said he's been in talks with other regulators. FDIC chairman Martin Gruenberg said he agreed there's an opportunity to simplify the rule. Both Mr. Powell and Mr. Noreika also suggested exempting community banks from Volcker and reducing the number of banks that are subject to stress tests.
Banks have long complained that Volcker has unnecessarily dried up market liquidity, because it went too far in preventing them from engaging in transactions on behalf of clients.
Many of the regulators' rollback ideas would need new legislation from Congress – a tall order amid partisan clashes over higher priorities on Capitol Hill, such as health care and overhauling tax policy.
Mr. Noreika's proposals represent a new direction for the OCC that had, until recently, been run by Obama administration appointee Thomas Curry, a former state regulator. It's unclear how long Mr. Noreika, who was a banking lawyer until he was tapped by Treasury Secretary Steven Mnuchin for his temporary OCC assignment, will lead the agency. He's under a special government-employee status that is meant to last only into mid-November.
In proposing that it's unnecessary to have the Fed share supervision duties with either the OCC or FDIC for the same relatively simple bank, Mr. Noreika suggested that those institutions could also be allowed to do business and access the capital markets without having to have a holding company at all.
Mr. Gruenberg defended the importance of keeping his agency involved in taking down collapsing financial firms and overseeing the living wills that banks must submit to regulators on how they would be dismantled in a failure. Mr. Powell said the Fed and FDIC have been discussing easing the burden of living wills by requiring them every other year, rather than annually.