UPDATED: In hearing, Fed nominee Clarida pledges ‘balanced approach,’ Bowman advocates ‘tailored’ rules

Richard Clarida and Michelle (“Miki”) Bowman told lawmakers Tuesday that, if they are confirmed to seats on the Federal Reserve Board, they would support the Fed’s dual mandate of maximum employment and stable prices as well as efforts to ensure the Fed’s regulations are appropriate for institutions subject to them. They also pledged to uphold the Fed’s independence.

The two testified Tuesday before the Senate Banking Committee on their nominations to terms on the Fed Board that for Clarida would last through January 2022 and for Bowman, through January 2020. Clarida is also nominated to a four-year term as the Fed’s vice chairman.

Richard Clarida testifies before the Senate Banking Committee Tuesday (May 15)

Clarida, answering a question from panel Chairman Mike Crapo, R-Idaho, said he supported the goals of tailoring and efficiency in regulation “but within the context of preserving important improvements” in safety and soundness achieved in in the years following the financial crisis, including under the Dodd-Frank Act. He said he would seek out efficiencies in regulation that do not put the financial system “at risk in an unnecessary way.”

An economics professor at Columbia University who has previously served in the Reagan administration and is a strategic advisor for PIMCO, Clarida pledged in his prepared testimony that if he is confirmed, his priority “will be to support policies that are effective, efficient, and appropriately tailored and that preserve the far greater resiliency and stability of the financial system that has been achieved as a result of the significant reforms that have been put in place since the financial crisis.”

‘Miki’ Bowman testifies before the Senate Banking Committee Tuesday (May 15)

Like Clarida, Bowman said she supports the gains in recent years in financial institutions’ health, but she said regulators “need to be very aware of the complexity, size and risk” profiles of regulated institutions.

“I think it’s appropriate to consider those characteristics within the context of safety and soundness … [and] apply the most appropriate level of regulation to each institution,” she said during the hearing. Bowman, from a community banking family and herself a former banker and current state regulator, acknowledged the weaknesses revealed during the financial crisis but also said the regulatory environment since then has “disadvantaged” community banks. “If confirmed, I will bring this perspective to my work at the Board to ensure that rules preserve the resiliency of the financial system, but are appropriately tailored to the size, complexity, and risk of an institution,” she testified.

Both nominees said they would seek to preserve the Fed’s independence in setting monetary policy and regulation despite any pressures from the White House. Clarida, who noted having met with the president prior to the hearing, answered that he was not asked by the president about how he would vote on changes in the federal funds rate. He also said he supports the “normalization” of interest rates.

Sen. Elizabeth Warren, D-Mass., asked Clarida his views on the Fed’s current proposal for an enhanced supplementary leverage ratio (eSLR); the proposal, still out for comment, would essentially reduce capital requirements for large banks, including all eight global systemically important banking organizations (GSIBs). Clarida said he was generally familiar with it but hadn’t read it fully. Warren questioned that and underscored the fact it was was opposed by Fed Gov. Lael Brainard and was issued without the support of the FDIC.

The Fed issued the proposed rule in concert with the Office of the Comptroller of the Currency (OCC). Brainard’s “no” vote is the only dissenting vote cast on a Fed Board action in at least six-plus years.

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Richard Clarida is nominated to a four-year term as the Fed’s vice chairman and as a governor representing Region 1 (Boston, Mass); he would succeed Stanley Fischer as vice chairman (he resigned from the board last October) and complete the unexpired board term of Daniel Tarullo (who left the Fed last April). Michelle Bowman is nominated as the Fed Board’s community bank representative for Region 8 (St. Louis, Mo.); she would complete Fischer’s unexpired board term. Bowman is currently serving as Kansas State Bank Commissioner, reportedly the first woman appointed to that post (and to the state Senate).

Testimony of Fed nominee Richard Clarida

Testimony of Fed nominee Michelle Bowman

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