Regulation

Departing Fed Governor Offers Advice On Financial Regulation

The financial crisis still has lessons relevant to today’s world.

The New York Times reports that statement is among the sentiments expressed by Daniel K. Tarullo, who has resigned from the Federal Reserve Board of Governors — and who stated that forgetting those lessons would be “tragic.” 

The paper noted that Tarullo had, for the past eight years, been front and center in regulating big banks, and the official had decided to resign well before his 2022 end in the wake of President Donald Trump’s victory.

Tarullo’s most recent remarks came at a speech delivered to the Woodrow Wilson School at Princeton, and the Times noted that he pointed to requirements that banks have more capital on the books.

With an eye on Dodd-Frank, Tarullo stated that the legislation had been one of compromise and said that it has given rise to “a host of restrictions and requirements” on banks.

Those “restrictions and requirements” include credit limits and resolution procedures, and yet compliance amid the complexity is a challenge. Congress might well have gotten around to tinkering with the intent to fix those challenges, but Tarullo said that there were “partisan divisions” in Congress that prohibited such revisits.

One surprise? According to the Times, Tarullo stated the Volcker Rule was a mistake, as it is too tough on market making by the big banks and forces them to devote resources such as time and capital.

What’s to be done? The departing governor stated that there should be action to move the $50 billion “threshold” for banks that is classified as being “systematically important” and which gets more Fed scrutiny. And, he added, $10 billion is too low to require stress tests on asset bases.

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