Yellen:  Big Banks Need Break-Up

In this report, FedFin assesses the regulatory impact of today’s Senate Banking confirmation hearing for Janet Yellen to chair the Federal Reserve.  As anticipated, much in the session focused on monetary policy, with Ms. Yellen pressed by Republicans on the complexities of the tapering and the risks of the FRB’s huge balance sheet.  Democrats generally supported a dovish monetary-policy stance, but took the FRB to task on regulatory policy.  Ms. Yellen made it clear that she strongly endorses the pending supplementary leverage ratio (see FSM Report LEVERAGE), as well as possible liquidity surcharges and wholesale-debt requirements to support orderly resolution.  She joined big banks in supporting Dodd-Frank’s approach as a credible end to too big to fail even as she agreed that big banks have an undue subsidy that should be whittled down.  Indeed, she agreed that the biggest banks should be made smaller and less systemic, although she did not lay out specifics on how to do so.  Ms. Yellen also previewed the FRB’s action on physical commodities, saying the FRB is looking at tougher prudential standards for banks allowed to remain in the arena.  Pressured on the Volcker Rule, she said it would be strong and eschewed any specifics.  Ms. Yellen received a favorable reception from both sides of the aisle and will win confirmation absent any intervening issues or Senate procedural hurdles.  However, Sen. Crapo (R-ID) implied that he would support her nomination on the floor only after all the other FRB vacancies have been named by the President into a package he can support.

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