Randal Quarles, Federal Reserve board member and Vice Chair for Supervision, takes part in a swearing-in ceremony for Chairman Jerome Powell at the Federal Reserve in Washington, U.S. (Photo : REUTERS/Aaron P. Bernstein)
Federal Reserve Vice Chair Randal Quarles says the banking system and recently reworked rules policing them performed "quite well" through the coronavirus pandemic, but urged regulators to continue to pursue fixes to bring an end to runs on money market funds.
According to prepared remarks, Quarles also argued that the Fed's countercyclical capital buffer, which can be increased to force banks to hold more cash to guard against instability, should only be utilized during times of "significant irrational exuberance."
Quarles's remarks, delivered to a virtual conference of banking executives, served as a broad defense of his agenda at the Fed, with his term as the central bank's top regulatory official set to expire in October.
As the Fed's top regulatory official, Quarles embarked on several projects aimed at refining and relaxing some of the rules put in place following the 2008 financial crisis. That included reworking the "Volcker Rule" that barred risky profit-seeking trades by banks to streamline its definitions and offer more clarity, and a tailored bank oversight regime that reserved the most rigorous restrictions and supervision for only the nation's largest banks, relieving the burden for smaller regional institutions and foreign lenders operating in the U.S.
Some critics of those rule easings, including congressional Democrats, argued it could inject new risk into the financial system.
But Quarles argued that banks' performance during the coronavirus pandemic, bolstered by existing post-crisis reforms, proved the system remains resilient. He noted banks actually increased their capital during the pandemic-induced recession, and were able to serve as a source of strength during the economy.
By contrast, Quarles noted similar efforts to reform money market funds following the 2008 crisis have fallen short, as that market sector required another government intervention in 2020 to prevent widespread runs.
He reiterated his call, shared by Treasury Secretary Janet Yellen among other government officials, that regulators redouble efforts to figure out how to prevent future runs.
"Addressing the shortcomings we saw among non-banks continues to be a focus of both domestic policymakers and the international community," he said, according to prepared remarks. "We cannot afford to allow the same things to
happen again."
