Fed chairman sees few vulnerabilities for financial system, wants to keep tools; commits to CRA

One of the most important lessons of the financial crisis of 10 years ago is the stability of the financial system – and the Fed is using the tools it has to maintain stability, the chairman of the Federal Reserve Board said Wednesday.

But he also said he doesn’t want to lose any “crisis-fighting tools.”

In a press conference following the meeting of the Fed’s rate-setting Federal Open Market Committee (FOMC), Chairman Jerome H. (“Jay”) Powell said the Fed has put into place many systems in the wake of the financial crisis of 2009-10 to assure system stability. Among other things, he mentioned higher capital requirements for financial institutions, as well as stress tests, liquidity requirements and a resolution process.

“Nobody’s overconfident we have solved every problem,” Powell said, adding that the agency is still looking at tweaks to its supervisory regimen. However, he indicated the lessons learned during the financial crisis remain fresh, at least for him. “A risk now is to forget the things that we learned,” he said. He also said he strongly opposes taking away any more of the Fed’s crisis-fighting tools.

Nevertheless, he said the central bank feels the financial system is in a much better place now. “I’m in the camp that sees much fewer vulnerabilities right now” to the financial system, he said.

In other comments, Powell said:

  • He is looking forward to seeing the three open seats on the Federal Reserve Board being filled soon. “It’s been too quiet,” he said, referring to the Fed governors’ offices at the central bank’s headquarters in Washington. “I’m very excited about the team that is being put together,” Powell said. “I’m looking forward to people getting confirmed.”
  • The Fed remains deeply committed to the anti-redlining Community Reinvestment Act (CRA), but that doesn’t mean changes aren’t forthcoming. “We have also been of the view for some time that evolution of technology makes it appropriate to revisit the way we think about CRA,” Powell said. However, he added that the Fed doesn’t want to lose “that focus on community.” “We definitely want to see that the fundamental purpose of the law is sustained,” he said. Asked if the Fed would join the Office of the Comptroller of the Currency (OCC) in issuing changes to CRA rules, Powell said that “we are hopeful over time there will be a joint rulemaking with the federal banking agencies.”

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