The Fed’s decision not to raise the so-called counter-cyclical buffer — a measure to bolster global banks’ strength when financial risks are rising — came after a long-awaited vote held by Jay Powell, the Fed chairman.
The board opted to leave the buffer at zero, rather than tightening conditions for banks, in a decision that was opposed by Ms Brainard, one of the governors.
Ms Brainard was also the solitary board opponent of a separate measure that would end pass-fail judgments on one part of the Fed’s so-called stress tests gauging banks’ ability to weather crises.
The Fed will now remove “qualitative” grades assessing matters including banks’ ability to identify how much capital they need from its tests for domestic firms. Major foreign banks will still be subject to the qualitative test.
Meanwhile, the Financial Stability Oversight Council, a body of financial regulators led by Steven Mnuchin, the Treasury secretary, announced proposals to change the way it monitors non-bank financial companies.
Under the Obama administration, financial institutions such as insurance companies had been subject to extra supervision if they were deemed “too big to fail”. But last October, the FSOC ended the supervision of Prudential, the final insurer to remain on that list.
The council on Thursday (AEDT) unveiled proposals which would make it less likely that those companies would be placed back on the watchlist, such as insisting that they should only come in for extra scrutiny if system-wide scrutiny is deemed inadequate. Any move to reinstate such supervision would also be subject to a cost-benefit analysis, the council said.
Speaking about the FSOC changes, Mr Mnuchin said: “Today’s proposal would make significant improvements to how the council identifies, assesses, and responds to potential risks to US financial stability . . . These changes will help ensure that the council accomplishes its mission efficiently and effectively.”
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