Fed’s Powell pressed on banking, climate and crypto regulations during Senate testimony

Monetary policy was not Federal Reserve Chairman Powell’s only focus when he answered questions from the Senate Banking Committee on Tuesday.

Republican lawmakers have also pressed Powell for clarity on capital requirements for big banks, cryptocurrencies and climate regulations.

Banks fear the Federal Reserve may consider increasing the amount of funding financial institutions need to absorb future losses following comments by Fed Vice Chairman of Oversight Michael Barr about ‘holistic review’ of these capital requirements given at the end of last year.

Republican Ranking Member Tim Scott (R-SC) expressed concerns about the review in a letter to Powell last week and again during Tuesday’s hearing.

“Raising capital does not necessarily provide greater benefit and forcing banks to hold capital that is not risk-based and appropriately scaled to a bank’s size and activities may cause more harm so good,” Scott said.

Powell assured Scott that the Fed will follow the law when it comes to reassessing capital requirements and that any proposals will be tailored to the risk, size and complexity of an individual bank.

Federal Reserve Chairman Jerome H. Powell testifies before a hearing of the U.S. Senate Banking, Housing, and Urban Affairs Committee on

Federal Reserve Chairman Jerome H. Powell testifies before a US Senate Banking, Housing and Urban Affairs Committee hearing on ‘The Semi-Annual Report on Monetary Policy to Congress’ on Capitol Hill in Washington, USA , March 7, 2023. REUTERS / Kevin Lamarque

Scott also asked Powell about a letter he and House Financial Services Chairman Patrick McHenry (R-NC) sent to Securities & Exchange Commission Chairman Gary Gensler asking him to rescind the rule of The agency’s proposed climate disclosure that would require listed companies to reveal their greenhouse gases. emissions.

Scott said he finds it troubling that the Fed is considering testing banks’ ability to withstand climate-related scenarios.

“Banks have and continue to take weather-related risks into account in their risk management. But efforts that attempt to predict climate change far into the future are beyond…their authority,” Scott said.

“It is important to note that the level of speculation required in these models should highlight their arbitrary and capricious nature at a time when our economy is suffering from historically high inflation.”

Powell said he agrees the Fed doesn’t have the power to use its monetary policy to engage in climate policies. Powell stuck to comments made in January that the Fed should resist the temptation to broaden the central bank’s scope to include social issues, including climate change.

In January, Powell said that without explicit legislation from Congress, it would be inappropriate for the Fed to use monetary policy to promote a greener economy. “We are not and will not be a climate decision maker,” Powell said.

Powell was also asked about cryptocurrencies and their risks for financial institutions.

Powell said stablecoins on public blockchains have been shown to be susceptible to fraud and money laundering, and are therefore not “compatible” tools with sound banking. Although he said stablecoins that are regulated similarly to comparable products could have a place in banking.

“Like everyone else, we’ve been watching what’s going on in the crypto space and what we’re seeing is a lot of turmoil, we’re seeing fraud, we’re seeing a lack of transparency, we’re seeing risk taking , we see a lot of things like that,” Powell said.

“What we’ve done is ensure that the regulated financial institutions that we oversee and regulate are careful and very careful about how they interact with the broader crypto space.”

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