Fed Chairman Powell’s Approach to Regulation Has Drawn Criticism From Some Democrats

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As President Biden nears a decision about who should be the next Federal Reserve chairman, the current chief is getting criticized by progressives for his record on bank regulation and the postcrisis rulebook for Wall Street.

During Chairman Jerome Powell’s nearly four years as head of the Fed, the central bank has revamped big-bank stress tests, tailored its rules for U.S. lenders based on their size and simplified key postcrisis regulations such as the Volcker rule prohibition on proprietary trading.

But some progressive Democrats have said Mr. Powell’s Fed hasn’t been tough enough on large financial firms, arguing that the central bank’s tweaks to rules adopted after the 2008-09 financial crisis significantly softened the impact of the 2010 Dodd-Frank law, designed to ward off another financial crisis. Were it not for trillions of dollars in fiscal relief from Congress and an array of Fed backstops to credit markets, the banks might have gotten into trouble during the pandemic last year, the argument goes.

“The overall picture is that the financial regulatory safeguards have been materially eroded over the past four years,” said Gregg Gelzinis of the Center for American Progress, a center-left think tank that isn’t taking a position on whether Mr. Powell should be offered a second term as chairman.

Mr. Powell has said that collectively the moves have clarified or better calibrated the central bank’s rules to reflect the risks posed to the financial system by the firms subject to them. In last year’s pandemic-driven, real-world stress test of the banking system, U.S. lenders emerged in solid financial shape, with stronger capital than before, he has said.



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