Focus On The Fed

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Fed’s Proponent for Regulation to Depart, Leaving 3 Vacancies
By BINYAMIN APPELBAUMFEB. 10, 2017

WASHINGTON — Daniel K. Tarullo, the Federal Reserve official who led its efforts to strengthen financial regulation over the last eight years, announced on Friday that he planned to leave the central bank in early April.

With Mr. Tarullo’s resignation, there will be three vacancies on the Fed’s seven-seat board, providing an opportunity for President Trump to start reshaping the Fed’s approach to monetary policy and to the regulation of the financial industry.

The Trump administration and congressional Republicans are pressing for the Fed and other financial regulators to reduce the constraints on financial institutions imposed in the aftermath of the 2008 financial crisis.

Mr. Tarullo offered no explanation for his departure in a terse, two-sentence letter to Mr. Trump. But eight years is an unusually long tenure for a Fed governor — many leave after just two or three — and people who know Mr. Tarullo said that in recent years he had become increasingly worn down by the job.

Daniel K. Tarullo, a Star at the Fed JUNE 3, 2010
DEALBOOK

After Mr. Trump’s victory, some Democrats privately urged Mr. Tarullo to remain in place for at least another year, but they did not convince him.

In an interview on Friday, Mr. Tarullo said that he was proud of the progress made over the last eight years in strengthening financial regulation, particularly of the largest financial institutions.

“I think everybody that has been working on this can take some satisfaction in how much has changed,” he said.

Mr. Tarullo also said he was optimistic that what he regarded as the most important changes were likely to endure.

“I do think that the core changes, with respect to the biggest institutions in particular, which is increased capital, stress testing, liquidity requirements, increased risk-management expectations and a feasible resolution regime — I think that those are both very important, and I believe durable,” he said.

The “resolution regime” refers to rules for unwinding a large financial institution that fails.

Mr. Tarullo acknowledged that congressional Republicans want to rewrite portions of the 2010 Dodd-Frank Act, and he said that he favored some changes, particularly easing the burden of regulation for smaller institutions.

Democrats publicly saluted Mr. Tarullo. Michael S. Barr, a top Treasury official in the Obama administration, described him as “a hero of financial reform.”

Dennis M. Kelleher, chief executive of Better Markets, a group that sometimes clashed with Mr. Tarullo because it wanted stricter regulations, said that he worried about Mr. Trump’s plans for a replacement.

“I’ve got a black armband on,” Mr. Kelleher said. “Anybody who cares about protecting the American people from another financial crash should be very worried merely from the statements President Trump has made and the people he has surrounded himself with.”

Republicans, by contrast, were eager to wrest regulatory control from Mr. Tarullo.

Representative Patrick McHenry, Republican of North Carolina, wrote an open letter last month to Janet L. Yellen, chairwoman of the Fed, blasting the agency for pursuing an unaltered regulatory agenda since Mr. Trump’s election. Mr. McHenry, the vice chairman of the House Financial Services Committee, demanded that the Fed wait until Mr. Trump’s appointees take over.

“It is incumbent upon all regulators to support the U.S. economy,” Mr. McHenry wrote in the letter, dated Jan. 31. “Accordingly, the Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests.”

Mr. Trump has no direct control over the Fed. Immediately upon taking office, he issued an executive order freezing regulatory work in the executive branch, but the order does not apply to independent agencies like the Fed.

Senate Republicans preserved two board vacancies by refusing to vote on nominees recommended by President Obama, the same strategy they employed to hold a seat on the Supreme Court. Now Mr. Trump will be able to fill the third of seven seats almost as quickly.

That could give Republicans four of the seven seats on the Fed’s board. In 2012, in an effort to conciliate Senate Republicans, Mr. Obama appointed a Republican governor, Jerome H. Powell.

Mr. Trump could also replace Ms. Yellen as chairwoman when her term ends in February 2018, although she could choose to remain on the board.

Regulations mandated by law cannot be erased by the Fed, but the central bank has amply demonstrated in recent decades that indifferent enforcement serves the same purpose. Mr. Tarullo was a proponent of vigorous enforcement; under his leadership, the Fed asserted greater control over the regulators who worked at the Fed’s 12 regional reserve banks. The Trump administration, by contrast, has expressed sympathy with industry complaints over that approach.

Mr. Tarullo, an early supporter of Mr. Obama’s 2008 presidential campaign, joined the Fed in January 2009, when he assumed responsibility for overhauling the Fed’s approach to regulation. He was particularly influential in pushing for higher capital standards that require banks to obtain a larger share of their funding from investors, reducing reliance on borrowed money.

In 2010, the Dodd-Frank Act created a new position at the Fed, a vice chairman for regulation. The Obama administration, judging that the Senate would not confirm Mr. Tarullo, chose to leave the position unfilled, allowing Mr. Tarullo to perform the work without the title.

The Trump administration has begun a search for candidates for that position. Among those under consideration is David Nason, a former Treasury Department official who is now an executive at General Electric, according to a person familiar with the search.

https://www.nytimes.com/2017/02/10/us/politics/daniel-tarullo-federal-reserve.html?ref=business