‘Premature’ to change bank capital, liquidity rules: Fed official

Washington (AFP) – A US central banker warned Thursday against prematurely easing requirements on banks to hold buffers in reserve, calling for regulators to remain “vigilant” as market risks emerge.

The remarks by Federal Reserve Board Governor Lael Brainard stood in contrast to the views of her two fellow board members, Chairman Jerome Powell and Randal Quarles.

Powell and Quarles voted last week to change a capital requirement for large banks imposed in the wake of the 2008 financial crisis, while Brainard opposed the move.

Brainard is the sole Fed governor not appointed by President Donald Trump, who is pursuing a deregulation agenda that includes loosening restrictions on the financial sector to promote growth.

In a speech at an event on regulatory reform, Brainard said the persistent strength of labor markets and increased soundness of the banking system were “heartening.”

But “If we have learned anything from the past, it is that we must be especially vigilant about the health of our financial system in good times, when potential vulnerabilities may be building.

“At this point in the cycle, it is premature to revisit the calibration of core capital and liquidity requirements for the large banking institutions,” she said.

While some believe the requirements “are too onerous” Brainard said “the evidence suggests otherwise: US bank lending has been healthy over recent years and profits are strong.”

She also said there were signs of “elevated risks” in asset values and corporate indebtedness.

Brainard’s remarks came the same day that Quarles, the Fed’s vice chairman for supervision, testified before a Senate panel, saying regulators could promote both free commerce and financial soundness.

“In fact, I believe that the supervisory objectives of safety, soundness and efficiency are not incompatible but mutually reinforcing,” he said.

Quarles testified earlier this week that a key reform of the post-crisis era, the so-called Volcker Rule restricting trading by banks, was hurting capital markets and should be reformed by Congress.

But he said Thursday the Fed intended to “maintain the core elements” of post-financial crisis reforms.