Yellen says risk of financial crisis increases if some Trump regulatory rollbacks are enacted

Federal Reserve Chairwoman Janet L. Yellen testifies before the Senate Banking Committee on Thursday.

July 13, 2017 8:55 AM PT

Reporting from Washington — Federal Reserve Chairwoman Janet L. Yellen told senators Thursday that the risk of another financial crisis would increase if some Trump administration proposals to roll back regulations were enacted.

In her second straight day of Capitol Hill testimony, she walked back her statement last month that she didn’t expect another financial crisis “in our lifetimes.”

“I think we can never be confident there won’t be another financial crisis,” Yellen told members of the Senate Banking Committee.

The U.S. has “done a great deal” since the 2008 crisis to strengthen the financial system, she said. That includes forcing banks to hold more capital to cover potential losses as part of the 2010 Dodd-Frank financial regulatory overhaul law.

“It is important that we maintain the improvements that have been put in place that mitigate the risk and the potential damage,” Yellen said.

President Trump has promised to dismantle Dodd-Frank, which Republicans have said has been too burdensome for banks.

In a report last month ordered by Trump, Treasury Secretary Steven T. Mnuchin proposed sweeping regulatory reductions, including changes that would reduce capital requirements for the biggest banks.

Yellen said she would not favor reducing those capital requirements.

Sen. Sherrod Brown (D-Ohio) pressed her on whether adopting the Treasury report recommendations “would more likely result in a potential financial crisis.”

“Well, some of them, yes,” Yellen said.

She said that she agreed with “a lot of things in the Treasury report” that are similar to Fed efforts to tailor regulations so they are not so burdensome for smaller banks.

The Republican-controlled House voted last month along party lines to repeal many of the Dodd-Frank regulations.

Senate Banking Committee Chairman Mike Crapo (R-Idaho) is working with Brown, the panel’s top Democrat, on legislation to make changes to Dodd-Frank that could focus more on small and midsized banks than Wall Street.

Also at Thursday’s hearing, Sen. Elizabeth Warren (D-Mass.) pushed Yellen to remove Wells Fargo & Co. board members who presided over the bank when it opened millions of accounts without customers’ authorization.

Wells Fargo agreed in September to pay $185 million to settle investigations into its sales practices by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and Los Angeles City Atty. Mike Feuer. The bank did not admit any wrongdoing but said its employees had opened millions of checking, savings and credit card accounts that customers never authorized.

The practice was made public by the Los Angeles Times in December 2013.

Warren wrote to Yellen last month urging the Fed, which oversees Wells Fargo’s holding company, to take the step. The Fed has not taken such a step.

“How could removal of these board members not be warranted given the facts that we already know?” Warren said.

Yellen said she could not discuss confidential information about the Fed’s supervision of the bank. She indicated no decision has been made on the board’s fate as the Fed continued to look into the matter.

“The behavior that we saw was egregious and unacceptable and it is our job to understand what the root causes are of those failures,” Yellen said. “We are certainly prepared to take enforcement actions if those are appropriate.”

Asked if she would accept appointment to a second term as Fed chairwoman, Yellen told senators, “I haven’t really decided that issue.”

Yellen’s four-year term ends in February. Trump has sent mixed messages about whether he would reappoint her. Gary Cohn, Trump’s chief economic advisor, reportedly would be the top candidate to replace Yellen.

Asked Wednesday during a House Financial Services Committee hearing if she anticipated that would be her last appearance there, Yellen said, “It may well be.”

Twitter: @JimPuzzanghera

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