Janet Yellen defended the Federal Reserve’s oversight of Wall Street in the years since the financial crisis, arguing banks are safer, have kept lending and remain profitable, despite claims by the Trump administration and Republican lawmakers that regulations have crippled economic growth. In congressional testimony Tuesday, the Fed chair disputed the notion that the Dodd-Frank Act has made U.S. lenders less competitive, stating that they are in far better shape than European rivals. Yellen also defended the Fed’s annual assessments of whether the banks can survive severe economic slumps, saying that stress tests have been key to boosting financial stability. And she said she’s seen little data substantiating assertions that small businesses can’t get loans, a frequent Republican attack on Dodd-Frank. “I see well-capitalized banks that are regarded as safe, strong and sound,” Yellen told members of the Senate Banking Committee. U.S. lenders are “capturing market share,” she added.
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Yellen’s comments come as Republicans and President Donald Trump set their sights on rules that they blame for paralyzing the U.S. economy. Trump, who has called Dodd-Frank a “disaster,” signed an executive order earlier this month instructing the Treasury Department to examine financial rules and file a report on its findings within 120 days.
Yellen said that she looks forward to working with Treasury Secretary Steven Mnuchin on the review. She told lawmakers Tuesday that that she agrees with the principles outlined in the administration’s executive order, which include preventing taxpayer bailouts of banks, making regulations more efficient and targeting government policies that might encourage financial executives to take undue risks.
“I certainly do agree with the core principles,” Yellen said. “They enunciate very important goals for our financial system.”
U.S. bankers and their lobbyists have devoted much of their recent attention to the never-filled Fed role of vice chairman for supervision, which was created by Dodd-Frank. Yellen laid out some of her plans for how she’ll treat a Trump appointee to that role, including allowing the person to represent the Fed in international talks over bank rules.
While pointing out that rulemaking is the responsibility of the entire Fed board, Yellen said the vice chairman will lead the board’s bank-supervision committee, personally update Congress on the Fed’s regulatory work and will represent the Fed before international bodies such as the Basel Committee on Banking Supervision.
Yellen, who was appointed by Barack Obama, said she won’t leave the Fed until her term expires in about 12 months. That means that even a vice chairman picked by Trump may have to temporarily defer to her on bank oversight, because the chairman controls the Fed’s agenda.
Senator Pat Toomey, a Pennsylvania Republican, continued his criticism of the Fed’s stress tests Tuesday, urging Yellen to scrap the Comprehensive Capital Analysis & Review portion. She demurred, saying the exams have been a “cornerstone of our efforts to improve supervision.” Yellen did say the agency will “continue to review” its practices for the yearly assessments, which are among banks’ most loathed aspects of Fed oversight.
Yellen separately defended the Fed’s work with foreign counterparts to align oversight of the financial industry.
In a Feb. 10 letter obtained by Bloomberg, she said participating in international talks helps ensure a “strong, stable U.S. economy and financial system.” Yellen made the remarks in response to a demand from Representative Patrick McHenry, a North Carolina Republican, that the Fed halt such negotiations until Trump has a chance to put his own officials in place.