Yellen says open to raising threshold for systemic banks
Federal Reserve Chair Janet Yellen has said she was open to raising a threshold for determining a bank's systemic importance and indicated that U.S. lenders had made progress in their submissions of so-called living will plans this month.
The tacit nod of approval from the Fed chief is a good sign for Wall Street, as a rejection can be costly, though Yellen also made clear the U.S. central bank will not hesitate to reject certain plans when it completes its assessment.
"We are certainly prepared to say that they are not credible," Yellen told the Senate Banking Committee during the second and final day of her semiannual testimony to Congress on the economy and monetary policy.
The questions aimed at Yellen focused more on financial industry regulation than the timing of an interest rate hike. One topic that emerged was the threshold for so-called SIFIs.
The 2010 Dodd-Frank financial reform law says that all U.S. banks with more than $50 billion in assets are labeled systemically important financial institutions (SIFIs), making them subject to tougher supervision by the central bank.
A bill drafted by Republican Richard Shelby, the committee chairman, and passed by the panel in May proposes allowing banks with assets between $50 billion and $500 billion to lose the SIFI designation if the Fed believes they are not systemically risky.
Republican Senator Mike Crapo reminded Yellen on Thursday that Fed governor and top banking regulator Daniel Tarullo has told the committee he supports raising the threshold above $50 billion.
"So, like Governor Tarullo, I would be open to a modest increase in the threshold," Yellen said. She added that it is critical for the Fed to maintain its discretion over systemically important banks should the SIFI threshold change.
The senators' questions for Yellen centered mainly on the Fed's role as the top banking regulator. Her appearance before the House of Representatives Financial Services Committee on Wednesday was marked by more aggressive questioning focused on transparency and congressional oversight of the central bank.
The Fed chief gave the same opening testimony in both appearances, saying that progress in the labor market and a strengthening economy put the central bank on track to raise interest rates later this year, though some headwinds remained.
She added that the Fed's decision on when to hike rates will remain data-dependent.