New Fed Chair Nominee
Currently a hot topic in the financial world, President Trump has nominated businessman Jerome Powell to replace Janet Yellen as the chair of the Federal Reserve. If approved by the Senate, Powell – a former executive at investment firm the Carlyle Group – would assume that role in February 2018. Powell as chair could be a boon for small- to mid-sized banks, particularly in the regulatory realm.
Rod Murray, Group Senior Vice President of Commercial Banking for Illinois, Texas, Indiana and Ohio at Associated Bank, notes that little is known about how Powell might approach monetary policy.
What We Know
“What we know about Mr. Powell is that we don’t know what his strict monetary policy is going to be,” Murray said. “But we know that he’s been described as everything from dovish to a centrist, or being neutral. One thing that I think is interesting about Mr. Powell is that he … would be the first in that chair in the last 40-plus years that doesn’t have an economics degree or background, so that might bring a slightly different spin to what he brings to the table.”
According to Murray, Powell’s unique background has drawn varying reactions.
“There’s two schools of thought on that,” Murray said. “There are some who have come out and said it can be a concern because: how will he act if there’s an economic downturn? But there are others who say he’ll take a more pragmatic approach and more of a (stance of) looking at the rules (and) regulations …”
Regulation May be the Reason for the Shift
Many wondered if Yellen might be asked to remain in her post. Murray notes it likely came down to banking regulations – in particular, Powell’s past interest in fine-tuning regulations based on the size of a financial institution, versus blanket regulations for banks across the board. Meeting stringent regulatory restrictions has often been a point of consternation for institutions that have fewer resources than the big banks at which the rules were initially aimed.
“… The speculation is it’s more about policy and regulation – or deregulation – that probably moved him off that (concept of re-nominating Yellen).”
In recent years, one of the biggest topics at the forefront for financial institutions is the regulations placed on them following the economic recession. According to Murray, Powell may be keen on taking some of the regulatory burden off of smaller financial institutions.
Possibility of Fewer Regulations for Smaller Institutions
Murray highlights a recent comment of Powell’s: ‘But in the longer term, stronger prudential requirements for large banking firms will produce more sustainable credit availability and economic growth.’
“And if you’re nitpicking words out there, I think the word ‘large’ is very interesting there,” Murray said. “So does that mean that there is some open ground there for the smaller banks or for the regional banks?”
The concept of right-sizing regulations based on the size of the institution is something that’s appealing to many small- and mid-sized banks.
“That goes right down our alley for a bank like Associated (Bank), and his other comments that I’ve read him say are (that) there are a lot of costs with regulations and he gets that, but he also is quick to say it provides a prudent backstop for liquidity and capital if there ever is a downturn.”