Democratic Sens. Elizabeth Warren and Sherrod Brown attacked an effort by the Federal Reserve to lower capital requirements for big banks in the upcoming coronavirus relief bill, arguing that doing so could hurt the economy and increase systemic risks.
Warren and Brown, both on the Senate Banking Committee, sent a letter to the Fed's Vice Chairman Randal Quarles, accusing him of lobbying Congress to insert regulatory favors for big banks into the Senate Republicans' coronavirus relief bill.
“Vice Chair Quarles has not been shy about lobbying on behalf of Wall Street,” Brown and Warren said in a letter to Fed Chairman Jerome Powell. “And it concerns us to learn that Vice Chair Quarles and Federal Reserve staff have been working with Senate Republicans to craft legislation that would undermine financial protections Congress passed after the last financial crisis.”
The senators argue that the push to lower the capital requirements would enrich bank CEOs and make the financial system less secure without any upside for families and workers hit hard by the coronavirus recession.
Banks and Fed officials, including Quarles and Powell, have said the changes are needed to allow banks to grow their balance sheets and better serve their customers amid the pandemic.
The debate is over a provision on capital requirements in the Dodd-Frank Act, the financial reform law passed as a response to the 2008 financial crisis, that established a host of new safeguards for banks and new powers for regulators.
Quarles wants Congress to release the Fed temporarily from a prohibition on lowering capital requirements to allow banks to better handle an influx of deposits in the strained economic environment.
Powell, at a news conference on Wednesday, said the proposed change to capital requirements was similar to those recently made by foreign central banks and was not a risky way to help banks have greater leverage with their balance sheets.
“If Congress chooses to do this, we would want it to be explicitly temporary,” said Powell. “This will not be a permanent change in capital standards.”
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