Fed chairman stands on ‘pillars’ of reforms adopted in wake of financial crisis

Suggests tailoring of rules for smaller banks in order

Protecting and extending regulatory provisions for banks installed in the wake of the financial crisis of 10 years ago – the “pillars” of the the regulatory actions, including higher capital requirements, better risk management, stress tests and more — is “really important,” the chairman of the Federal Reserve said in a radio interview Thursday.

Responding to questions from host Kai Ryssdal of the radio program “Marketplace,” Federal Reserve Board Chairman Jerome “Jay” Powell said the Federal Reserve is not “going to forget” the lessons learned as a result of the financial crisis (which Ryssdal pointed out erupted in earnest a decade ago). “But we’re going to try make sure that the things that we’ve done have been right and efficient too,” the Fed chairman said.

Powell noted that when the shock of the collapse of the housing market bubble hit the financial system, the system proved unable to handle it. “So what the big storm showed was a whole bunch of weaknesses in the way we supervise banks, in payment utilities, in the financial markets broadly,” he said.

As a result, Powell said, the last decade has been spent going back and addressing the weaknesses of the system, which he said essentially required the government and the taxpayer to step in behind the the banks and financial system — putting the taxpayer at risk. “So we don’t want to do that again. I think nationally everyone looked around and said, ‘Let’s not do that again any time soon.’”

Powell recited the “pillars” of addressing the system weaknesses included: higher capital, higher liquidity, better risk management, stress testing, living wills and resolution plans, in case banks do fail.

Later in the interview, Powell reiterated keeping the pillars. “We’re going to strengthen them,” he said. “We’re going to make them more transparent, more sustainable. So we’re not looking to go back to the pre-crisis era, but we want the strongest, toughest regulation and supervision to be aimed at the largest, most systemically important financial institutions.”

However, for regional banks and smaller and “local community banks,” Powell said there is some room for tailoring. “We’re really going through that quite carefully to make sure that we didn’t overdo it,” he said.

“Just because we put something in a rule once doesn’t mean it’s perfect. It can be improved and that’s really what we’re trying to do,” he added.

‘Marketplace’ interview with Federal Reserve Board Chairman Jay Powell