Fed’s Powell pushed for banking, climate and crypto regulations during Senate testimony
Monetary policy was not the only focus for Governor Powell when he fielded questions from the Senate Banking Committee on Tuesday.
Republican lawmakers also pressed Powell for more clarity on capital requirements for big banks, cryptocurrencies and climate regulation.
Banks fear the Federal Reserve plans to increase the amount of funding financial institutions need to absorb future losses following comments by the Fed’s Deputy Chairman for Supervision, Michael Barr, about a “comprehensive review” of these capital requirements given late last year.
Republican ranking member Tim Scott (R-SC) expressed concern about that review in a letter to Powell last week and again during Tuesday’s hearing.
“Increased capital does not necessarily provide an increased benefit, and requiring banks to hold capital that is not risk-based and appropriately tailored to a bank’s size and activities may cause more harm than good,” Scott said.
Powell assured Scott that the Fed would follow the law in revising capital requirements and that any proposals would be tailored to the risk, size and complexity of an individual bank.
Scott also asked Powell about a letter he and House Financial Services Chairman Patrick McHenry (R-NC) sent to Securities & Exchange Commission Chairman Gary Gensler asking him to rescind the agency’s proposed climate disclosure rule that would require publicly traded companies to disclose their greenhouse gas emissions. emissions.
Scott said he found it troubling that the Fed was considering testing banks’ ability to withstand climate-related scenarios.
“Banks have and continue to take weather-related risks into account in their risk management. But efforts that attempt to predict climate change far into the future fall outside the scope of … their authority,” Scott said.
“Importantly, the level of speculation required in these models should highlight their arbitrary and capricious nature at a time when our economy is suffering from historically high inflation.”
Powell said he agreed that the Fed does not have the authority to use monetary policy to intervene in climate policy. Powell stood by comments from January. The Fed should resist the temptation to expand the central bank’s scope to include social issues, including climate change.
In January, Powell said without explicit congressional legislation, it would be inappropriate for the Fed to use monetary policy to promote a greener economy. “We are not and will not be a climate politician,” Powell said.
Powell was also asked about cryptocurrencies and their risks to financial institutions.
Powell said that stablecoins on public blockchains have been shown to be vulnerable to fraud and money laundering and are therefore not tools “consistent” with sound banking. Although he said stablecoins that are regulated in the same way as comparable products could have a place in banking.
“Like everybody else, we’ve been looking at what’s been going on in the crypto space, and what we’re seeing is quite a lot of turmoil, we’re seeing fraud, we’re seeing a lack of transparency, we’re seeing that we’re at risk, we’re seeing a lot of things like that.” , Powell said.
“What we have done is to make sure that the regulated financial institutions that we monitor and regulate are careful and take great care in the ways they engage in the whole crypto space.”
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