Yellen Treads Carefully on Regulatory Issues in Senate Panel Appearance

https://www.nytimes.com/2017/07/13/us/politics/yellen-fed-banking-regulation-senate.html

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WASHINGTON — The American economy is doing well enough that senators largely ignored the subject as they questioned Janet L. Yellen, the Federal Reserve chairwoman, for two hours on Thursday morning.

Instead, her appearance before the Senate Banking Committee was devoted mostly to regulatory issues.

Republicans sought Ms. Yellen’s support for proposals to loosen or eliminate some strictures imposed on financial institutions after the 2008 financial crisis. Democrats pressed her to affirm the importance of those regulations.

Ms. Yellen, who has played a crucial role in rebuilding the regulations, made it clear that she was proud of her work.

“I believe we have done a great deal since the financial crisis to strengthen the financial system and to make it more resilient,” she told the committee. Asked whether some of the rollbacks proposed by the Trump administration and congressional Republicans might increase the chances of a new crisis, she said, “Some of them, yes.”

At the same time, Ms. Yellen was carefully conciliatory, repeatedly agreeing that some rules might be too strict, and expressing a general willingness to consider changes. She also reiterated her support for reducing the regulation of community banks, a popular idea among members of both parties, though specifics are hard to come by.

Ms. Yellen said little about monetary policy, the stated purpose of the biannual hearing. The Fed raised its benchmark interest rate in June for the third consecutive quarter, and it plans to begin reducing its bond holdings this year.

Ms. Yellen said the economy remained in good health. “I don’t see anything inherent in the nature of the expansion that suggests it will come to an end anytime soon,” she said.

Appearing before a House committee on Wednesday, Ms. Yellen said that the Fed was paying close attention to the recent weakness of inflation. On Thursday, she offered a slightly different take, saying that sluggish inflation was a concern but that the Fed also remained concerned that strong job growth might lead to more inflation.

Senator Mike Crapo, the Idaho Republican who leads the banking committee, opened the hearing Thursday by expressing concern that regulators, including the Fed, were impeding growth by constraining bank lending.

“I regularly hear from Idaho businessmen and women who are concerned about access to loans that would create jobs and build a healthy economy,” Mr. Crapo said.

He focused in particular on a requirement that imposes additional regulations on banks with at least $50 billion in assets. Republicans want to raise the threshold to exclude regional lenders like Huntington National Bank, Comerica and Zions Bancorporation.

Ms. Yellen said the Fed supported a higher threshold, but she declined to specify what the new number should be.

Democrats have expressed a willingness to reduce the regulation of smaller banks, but they pressed back Thursday against any weakening in the rules for the largest banks.

“Lobbyists are using the success of these reforms as proof that they should now be gutted,” said Senator Sherrod Brown, Democrat of Ohio. Referring to Ms. Yellen’s former life as an economics professor, he added, “I’m sure that every college student you taught in your long, distinguished academic career who struggled in class would have wanted the same thing. But they, unlike our nation’s largest banks, would have been too embarrassed to ask their professor.”

Senator Elizabeth Warren, Democrat of Massachusetts, asked Ms. Yellen why the Fed had not removed members of Wells Fargo’s board after a scandal involving the opening of fake customer accounts.

Ms. Yellen said the matter remained under investigation. “The behavior that we saw was egregious and unacceptable,” she said.

Senators did take advantage of Ms. Yellen’s presence to explore some issues related to the health of the economy, including the sluggishness of inflation and productivity growth and the high level of the federal debt.

A couple of senators expressed particular concern that the Trump administration’s trade policy was already weighing on the American economy. Senator Ben Sasse, Republican of Nebraska, asked Ms. Yellen to comment on a decline in sales of American corn to Mexico. “I’m going to pass, if you don’t mind, on this question,” she responded.

Senator Heidi Heitkamp, Democrat of North Dakota, expressed similar concern about the impact on agricultural exports. Ms. Yellen again declined to comment on the specific issue. Ms. Heitkamp then asked if Ms. Yellen would at least agree that trade has been an important engine of economic growth.

To this much, Ms. Yellen assented.