The resilience of banks during the pandemic, coupled with results of stress tests, show that “the overall level of capital in the banking system is more than ample,” said Fed Gov. Randal Quarles on Thursday.
Quarles was the first confirmed Fed Vice Chairman for Banking Supervision until his term ended in October.
President Joe Biden has yet to announce his replacement. Candidates under consideration include Richard Cordray, the former head of the Consumer Financial Protection Bureau.
Critics of Quarles argue that the banking sector was resilient during the financial crisis simply because the Fed bought trillions of dollars of Treasurys and set up emergency programs to keep the market functioning.
In his remarks, Quarles dismissed this argument, saying that it ignores that the Fed ran multiple stress tests throughout the pandemic. These tests assumed no additional fiscal or Fed measures to support the economy “and demonstrated that, even without such support, the banking industry would have fared very well.”
Quarles said he is leaving the Fed’s supervisory framework stronger than it was four years ago.
“I am quite proud of the improvements we have made in increasing the transparency and public accountability of our activities overseeing banks,” he said.
Critics say the “transparency” amounted to the Fed giving banks the answers to the stress-test exam before the tests took place.
Sen. Elizabeth Warren, the Democrat of Massachusetts who crafted the government’s rules for the biggest banks in the wake of the 2008 financial crisis, were so upset by Quarles’ agenda that she called Fed Chairman Jerome Powell “a dangerous man” for going along with them.
No matter who Biden picks to replace Quarles, big bank capital requirements will rise, said Jaret Seiberg, financial services and housing policy analyst for Cowen Washington Research Group.