Last week, Daniel Tarullo—the Fed’s de facto vice chairman for supervision and the Torquemada of banking regulation, who spent eight years crafting the most diabolically cruel stress tests ever countenanced by man or beast—stepped down from his post. Like many others, his now-former boss excepted, he chose to bow out and give President Trump a free hand in implanting his YOLO financial regulatory scheme. But before returning to the place people like him belong in the MAGA era—the academy—Tarullo offered some words of wisdom to his successor, if President Trump got around to appointing him. Other than the surprising admission that the Volcker Rule should probably not be given the chance to outlive its aged namesake, it was a pretty par-for-the-coursevaledictory for Tarullo.
He offered up some fixes, including increasing beyond $50 billion in assets the threshold for banks that are labeled “systematically important” and require additional Fed oversight. He also said $10 billion in assets was too low a threshold to require banks to do their own stress tests. And he conceded that local and community banks should not be subject to the same Dodd-Frank requirements as the big banks….
“As proposals for regulatory change swirl about,” Mr. Tarullo concluded, “it is crucial that the strong capital regime be maintained, especially as it applies to the most systemically important banks. Neither regulators nor legislators should agree to changes that would effectively weaken that regime, whether directly or indirectly. It would be tragic if the lessons of the financial crisis were forgotten so quickly.”
I guess they weren’t teaching Marx at Roxbury Latin, Georgetown, Duke or Michigan Law School when Tarullo was around, at least not the part about history repeating itself first as tragedy and then as farce. Because the people in charge these days certainly seemed determined to repeat history as a rather tremendous farce. In other words: Tarullo was wasting his breath. No one, outside of the polite audience at Princeton, was listening.
But maybe those vocal exertions were not for naught, after all. For Gary Cohn continues to chalk up victories in his battle against Steve Bannon, whose “destroy the administrative state” agenda would probably have best been fulfilled by leaving the Fed supervisory role vacant in advance of its eventual abolition. And that means that the guy likely to get Tarullo’s job, Randal Quarles, sounds an awful lot like Tarullo.
Mr. Quarles said in a 2015 interview with Bloomberg TV that repealing the Dodd-Frank law altogether is “politically very difficult,” but that significant changes to the law were worth considering. In some respects, he said, the regulatory overhaul was “not ambitious enough,” while in other ways “it was overly ambitious.”
Mr. Quarles is seen as less ideological than other candidates the Trump administration had considered for the job.