WASHINGTON – Federal Reserve Board Chairman Jerome Powell said the central bank has made regulatory mistakes under his watch and takes responsibility for addressing them.
“I’ve been chairing the board for more than five years and I fully recognize that we made mistakes,” Powell said, nodding at the three banks that have failed for the past two months. “I think we’ve also learned some new things, and we have to do better.”
Powell addressed the failures and last week report Vice Chairman of Supervision Michael Barr on the Fed’s own supervisory shortcomings during his post-Federal Open Market Committee news conference on Wednesday afternoon.
Powell said he was not involved in compiling Barr’s report, but his findings were “persuasive.” He said he fully agreed with the conclusions that regulatory policy and supervisory practices at the central bank were insufficient, adding that he would support whatever changes are needed to address those shortcomings.
“Our job now is to identify those things and implement them, and that’s all I care about,” Powell said. “I feel like I’m responsible for doing everything I can to make sure that happens.”
The resolution of First Republic Bank, which was seized by the Federal Deposit Insurance Corporation and sold to JPMorgan over the weekend, “draws a line under” the period of severe stress related to the current banking crisis, Powell said. He noted that the three most affected banks, Silicon Valley Bank, Signature Bank and First Republic, have been dealt with.
Going forward, he said, the Fed will monitor credit standards at small and midsize banks to determine how much the crisis will affect availability for households. Earlier, Powell said the resulting tightening had the cumulative impact of a roughly 25 basis point increase in the Fed funds rate, but said it was impossible to pinpoint.
Powell offered no specific policy recommendations in response to the report, saying Barr will take the lead in that effort.
During the press conference, Powell explained his relationship with the vice president of supervision, a position created by the 2010 Dodd-Frank Act to be the Fed’s point person on regulatory matters. Powell said it has not been a matter of “total deference” to Barr or his predecessor Randal Quarles, noting that he will share his view on the issues. But ultimately, the person in that position sets the agenda and has “sole authority” over supervision.
“I respect the authority that Congress has vested in that person, including working with Vice President Barr and his predecessor,” Powell said. “I think that’s the way it’s supposed to work, and that’s appropriate. I think that’s what the law requires.”
In the wake of the failures, Quarles and the regulator tailoring policies enacted under his tenure have borne the brunt of the current banking crisis, specifically the decision not to apply stricter supervision to banks with between $100 billion and $250 billion in assets.
Asked if he regretted the policy decisions the Fed made under his tenure as chairman in light of recent bank failures, Powell said: “I have a few.” But he added that he is focused on what is coming.
“What we control now is: do a fair assessment, learn the right lessons, find out what the solutions are and implement them,” he said. “Vice President Barr’s report is an excellent first step in that direction, but we have to move on.”
The Fed raised its benchmark interest rate by a quarter of a percentage point during the meeting, its 10th increase in as many meetings. The target range for the federal funds rate is now between 5% and 5.25%.
Powell indicated that the Fed would halt future rate hikes to allow time for the economy to fully absorb the fastest monetary policy tightening in more than 30 years. The agency started raising rates from scratch last March and at one point implemented four consecutive 75 basis point hikes.
For several months, some economists and analysts have been urging the Fed to ease its aggressive rate-hike campaign over concerns about financial stability. Many of those observers see the failure of Silicon Valley Bank, an outcome driven, in part, by the bank’s inability to hedge its interest rate risk exposures, as a sign that the pockets of the banking system had come to a head. of rupture.
The Fed doesn’t see it that way. Even after the First Republic’s failure, the committee noted that the US banking industry is “robust and resilient.”