By Andrew Ackerman and Ryan Tracy
WASHINGTON -- Randal Quarles, President Donald Trump's pick to
become the Federal Reserve's point person on financial regulation,
told lawmakers Thursday he would support changes to the central
bank's stress tests for big banks, embracing industry-backed
efforts to boost their transparency.
At his confirmation hearing before the Senate Banking Committee,
Mr. Quarles criticized "the lack of transparency that has
surrounded" the annual tests, which have become the key regulatory
hurdle large U.S. banks face.
The remarks suggested Mr. Quarles, if confirmed, would be
willing to go further than his predecessor, former Fed governor
Daniel Tarullo, in publishing more information about how the tests
are run. Industry officials have long demanded more details, in
part to avoid embarrassing failures. Mr. Tarullo resisted
disclosing certain information, saying it could allow banks to game
the exams.
"I do think the Fed can look at being more transparent about
those activities and do it in a way that doesn't reduce the
effectiveness of those tests," Mr. Quarles said.
Mr. Quarles, who was testifying alongside Joseph Otting, Mr.
Trump's pick for the comptroller of the currency, also called for
"some refinements" to the postcrisis rule book for Wall Street,
which he said has broadly made the financial system safer.
"As with any complex undertaking, after the first wave of
reform, and with the benefit of experience and reflection, some
refinements will undoubtedly be in order," Mr. Quarles said.
The hearing is a crucial step to advance the nominees toward
their expected confirmation in the coming months. The nominations
require a simple Senate majority to pass, and Republicans control
52 of 100 seats in the chamber.
Both likely would represent more industry-friendly voices at the
country's top bank regulators. The Trump administration already is
conducting a review of Obama-era banking rules that it says go too
far and curb lending.
No Republican criticized either nominee Thursday, but the pair
quickly came under fire from Senate Democrats. Sen. Sherrod Brown
of Ohio, the panel's top Democrat, highlighted positive remarks
about the economy that Mr. Quarles made before the financial crisis
while he was serving in the George W. Bush administration.
"Many of his statements leading up to the crisis lead me to
wonder whether he was asleep at the switch or willfully turning a
blind eye to Wall Street abuses," Mr. Brown said. Mr. Quarles said
later at the hearing that he regretted some remarks highlighted by
Mr. Brown.
Idaho Sen. Mike Crapo, the Republican who heads the panel,
praised both Messrs. Quarles and Otting as "highly qualified."
Mr. Quarles, an investment-fund manager and former Treasury
Department official nominated earlier this month, would become Fed
vice chairman of supervision, taking on a job created by Congress
in 2010. That post was never formally filled, although Mr. Tarullo
effectively served in the role.
At Thursday's hearing, Mr. Quarles also said he would be open to
revisiting the Volcker rule, which bans banks from certain types of
trading and investing. He swatted away questions about bank capital
requirements, saying, "I don't have a view as to whether they
should be higher or lower."
In addition to his work on financial regulation, Mr. Quarles
would weigh in on monetary policy as a member of the Fed's board of
governors. The seven-seat board is currently short-staffed, with
only four members.
Mr. Quarles didn't back away from his previous support of using
clearly stated rules for setting monetary policy, but he did tell
senators that he doesn't necessarily support the rule named for
Stanford professor John Taylor, his former boss at the Treasury
Department. "I'm not advocating the adoption of a Taylor rule to
guide Fed policy," he said.
Mr. Quarles previously served in the Treasury Department in both
Bush administrations. He left the government in 2006 and the
following year became a managing director at private-equity firm
Carlyle Group, investing in troubled banks. To join the Fed, he is
leaving a job as managing director at Cynosure Group, a Utah
investment firm backed by family offices, including the Eccles
family, which Mr. Quarles married into.
Not much is known about Mr. Otting's regulatory views, though he
adopted a similar tone to other Trump administration officials, who
have called for a review of banking rules. On Thursday, Mr. Otting
suggested he would be open to easing capital requirements that he
said are "highly complex" and need "to be examined."
Mr. Otting has worked in banking for decades. In 2010, he was
hired as chief executive of OneWest, now owned by CIT Group. At the
time, he was a lieutenant of Treasury Secretary Steven Mnuchin, who
was chairman of OneWest.
Democrats pressed Mr. Otting on allegations that the bank
engaged in "robo-signing" during the foreclosure crisis, pushing
borrowers out of their homes without properly reviewing their loan
documentation. Mr. Otting said that although he signed a 2011
consent order laying out what regulators called faulty practices at
the bank, he didn't agree with the findings.
"The error rate was incredibly low, and so my viewpoint is, is
if you look at the actual facts, there is a false narrative," he
said.
Mr. Otting would succeed Keith Noreika, the acting
comptroller.
Write to Andrew Ackerman at andrew.ackerman@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
July 27, 2017 13:47 ET (17:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.