Fed’s Stress-Test Champion Reshapes Regulation of Biggest Banks

By Craig Torres and Cheyenne Hopkins

Not long after President Barack Obama picked Daniel Tarullo for a seat on the Federal Reserve Board, he sat down for the standard briefing with the staff and promptly turned the tables on them. Tarullo told them they had made mistakes in supervision, and he wouldn’t defend their past actions. Later, he told Richard Shelby, the leading Republican on the Senate Banking Committee, he endorsed Shelby’s view that regulators had fallen down. He said it was time to “reshape” regulation. In the past three years, no one has done more to strengthen government’s grip on the financial system. A former law professor and aide to President Bill Clinton, Tarullo, 59, has piloted implementation of the Dodd-Frank Act, the most sweeping overhaul of financial regulation since the 1930s. He has a larger say in banks’ day-to-day decisions on compensation, dividends, stock buybacks, mergers and risk-taking. And he has buried former Chairman Alan Greenspan’s light-touch regulation that kept the Fed from doing more about risky mortgage practices in the last decade. “Dan is tough and independent; his sole priorities are financial stability and the public interest,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp. from 2006 to 2011 and now a senior adviser at the Pew Charitable Trusts. “That said, he has his hands full trying to change the regulatory culture at the Fed and dealing with the sometimes competing views” of its 12 district banks.  “Dan is the first governor that I can recall in recent memory that has taken on an issue, run the staff and dictated policy,” said Karen Shaw Petrou, who has watched financial policy for 27 years as head of Federal Financial Analytics in Washington. “Supervision and regulation has been an afterthought for most governors.”