Powell's Fed Emphasizes Comprehensive Review of Large Bank Capital Framework

Powell Emphasizes Comprehensive Review of Large Bank Capital Framework

In a brief address at a supervisory meeting, Federal Reserve Chair Jerome Powell underscored that the central bank would undertake a comprehensive review of the large bank capital framework, aiming to ensure effective regulation and the system's soundness. Powell called for input and suggestions from all interested parties. The speech was closely watched, with Powell remarking that he wasn't surprised by the strong interest. However, he didn't touch on any issues related to monetary policy or speculation about his potential resignation.

Full Text of Powell's Remarks

"Good morning, and welcome to the Federal Reserve. I am glad—though not surprised—to see so much interest in today’s topic, which is a comprehensive review of the capital framework for large banks. I especially want to thank Vice Chair for Supervision Barr for her great idea to host this meeting early in her tenure, and also to thank the Fed staff for their hard work in preparing for it. Today, we will hear from industry veterans, academics, and current and former policymakers, all of whom are intimately familiar with the operations of large banks and the main pillars of the capital framework. One great benefit of this meeting is the opportunity to consider the different components of the capital framework as a whole, rather than looking at each piece in isolation. We must ensure that the different parts of the capital framework work together to maintain a safe, sound, and efficient banking system, to the benefit of the public we serve. The U.S. bank capital framework includes risk-based capital requirements, leverage requirements, supplemental capital requirements for the largest and most complex banks, and stress tests. We will have a comprehensive discussion of the current state of these elements and the future directions. As everyone in this room knows, we have current or forthcoming proposals in all four of these areas. Our regulatory capital framework and all bank rules will ultimately be implemented through supervision. Vice Chair for Supervision Barr has extensive experience in this area as a former banker and state regulator. As she has emphasized, we must ensure that supervisory practices are focused on the key areas that determine the safety and soundness of banks. We need large banks to have ample capital to properly manage their key risks. At the same time, we need large banks to be able to compete freely—with each other, with nonbank financial institutions, and with banks in other jurisdictions—in order to fund and support economic growth. The Fed is a dynamic institution. We are open to new perspectives, and we welcome your thoughts and suggestions on how we can improve the capital framework for large banks. I look forward to hearing from you today. Thank you again for being here today."