Powell’s Key Banking Positions

The American Banker reports that with President Trump's selection of Jerome "Jay" Powell to head the Federal Reserve Board (FRB) next year, the central bank's post-crisis regulatory structure will be tested for the first time under new leadership.

It is important to note that while Powell has been nominated as FRB chair, Randal Quarles – Trump's first appointment to the central bank – is already serving as the vice chair of supervision, whose job is to "develop policy recommendations for the Board" and who "shall oversee the supervision and regulation" of firms subject to Federal Reserve oversight.

There is not much precedent for how the FRB chair and vice chair for supervision interact on regulatory matters; Quarles is the first to formally hold the position. However, what little precedent there is suggests that the FRB chair will largely stick to monetary policy while the vice chair will stick to regulatory matters.

However, according to the article, Powell has opinions of his own on regulatory matters and ultimately he will hold the gavel. Therefore, we have provided a summary of some of his key positions related to the securitization industry:

Housing Finance Reform

Powell has not staked a concrete position on what to do with Fannie Mae and Freddie Mac, but he has urged policymakers to act soon, stating that "we're almost at a now-or-never moment here."

"I hear people from all sides saying they find the current status quo unacceptable and seeing constructive movements," Powell said in a July speech. "If we don't get on with this, we will find ourselves, I believe with time, with a lot of exposure to the taxpayer and financial stability issues."

Capital Requirements

Powell has made it clear he is content with the status quo on capital requirements for banks, resisting calls from some to raise them further, but also suggesting he does not want to lower them either.

"My view is that U.S. capital standards are about right now," Powell said in October at an event held by George Washington Law School. "Risk-based capital is about where it needs to be – I don't see it as clearly high or too low."

Volcker Rule

Powell said in his June testimony before the Senate Banking Committee that the rule "probably could have been limited to a handful of firms" but instead applies to the entire banking industry, which he said accounts for much of the compliance headache for banks and regulators.

"We would support significant tailoring of the application in Volcker so that really it falls on the banks that have big trading books, and it falls much more lightly as you go down" in asset size, Powell said. "It's very important that the intensity of regulation be tailored appropriately for the risk of the institution present."

Interest Rates

In his five years serving on the Fed Board of Governors, Powell has never dissented from the majority. In a June interview on CNBC, he said that he was broadly on board with the FRB's three-rate hike program for 2017 and would support beginning to draw down the FRB's balance sheet.

With respect to the size of the FRB's $4.5 trillion balance sheet, Powell said "My own thinking is, it really depends on a whole bunch of factors which haven’t been decided yet. It's hard for me to see the balance sheet getting lower than $2.5 trillion to $3 trillion. That assumed that we normalize the balance sheet over the course of the next five years and go back to a fairly small number of reserves."

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