Today’s Senate Banking session did not repeat the strong calls from FinServ GOP leadership yesterday to ban IOER and immediately reduce the balance sheet. Instead, the session focused on broader monetary-policy and regulatory concerns. This gave Chair Yellen the chance to make more clear today that the FRB is indeed moving forward on Gov. Powell’s recommendation to remove central-bank reserves from the leverage ratio (LR) denominator. Gov. Powell has also suggested that the GSIB surcharge would soon be incorporated in stress testing; Ms. Yellen said that this is indeed in the works even as she stressed the need for tough, opaque stress testing. As in the past, the FRB Chair agreed that the $50 billion threshold is too low, that community banks need relief, and that Volcker is too complex. Chairman Crapo (R-ID) signaled in his opening statement that bipartisan legislation would address all these issues without providing any of the specifics the Chair also eschewed. Sen. Crapo also stressed the urgency of GSE reform, with Ms. Yellen seconding Mr. Powell’s call last week for rapid action on housing finance. Ranking Member Brown (D-OH) strongly defended the post-crisis regime, leading Ms. Yellen to say that some, unspecified recommendations in the Treasury report pose systemic risk.
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