Watchdog Calls on Key Former Trump Regulator to Testify
Washington D.C. – Today the U.S. Federal Reserve released a formal review of its own supervision and regulation of Silicon Valley Bank following the bank’s sudden collapse last month, which found supervision failures within the Fed stemming from Trump era regulation changes in 2019 that loosened regulations and requirements for mid sized banking institutions. In response, government watchdog Accountable.US released an analysis finding former Trump-appointed Federal Reserve Vice Chair for Supervision Randal Quarles played a key role in the deregulatory efforts that made it easier for midsize banks to make risky bets beyond their means.
According to the New York Times’ reporting on the Fed review conducted by Michael S. Barr, the Fed’s current Vice Chair for Supervision: “Mr. Barr was a major architect of intensified bank regulations in the wake of the 2008 crisis. […] [M]uch of his review reflected on supervision under his predecessor, Randal K. Quarles, the Trump-appointed vice chair for supervision in that office from 2017 to October 2021. […] The findings suggested that supervisors failed to fully understand how much risk Silicon Valley Bank was taking. Fed supervisors flagged issues at the bank, but it did not catch them all or follow up on them intensively enough. The bank’s management was rated satisfactory from 2017 through 2021, despite repeated observations of risk taking, the report found.”
The rash of recent mid sized bank troubles is a story that can’t be told without one of its main characters, former Trump Fed official Randal Quarles, who instilled a culture of hands-off banking supervision that invited banks to make risky bets beyond their means. Congressional Republicans in the pocket of the financial industry played their part when they watered down risk assessment rules and shifted oversight powers to the Trump administration that shared their loyalties to Wall Street. Trump officials like Mr. Quarles used their newfound ‘discretion’ to assure midsize banks there were no federal consequences to worry about if they gambled with other peoples’ money in pursuit of profit -- even if they couldn’t afford to lose. Letting the financial industry write their own rules has led to instability and economic harm time and again, yet alarmingly, the MAGA House Majority sees the latest consequences of right-wing deregulation as an excuse to gut financial safeguards even further.
Randal Quarles should be called to testify about his role in the recent banking crisis. He clearly has the time as he led a recent media blitz disingenuously playing down the outsized role the 2018 Republican rollback of Dodd-Frank risk assessment rules had in it all.
Liz Zelnick, Director of Accountable.US’ Economic Security & Corporate Power.
Accountable.US’ analysis finds Quarles quickly exploited his newfound “discretion” that Congressional Republicans gave him under the 2018 Dodd-Frank rollback law – openly discussing what was described as “substantial big-bank deregulation” under the veil of “tailoring” policy. Under Quarles’s leadership, the Fed proposed and implemented several changes to the bank stress-testing regime — with Quarles admitting in a 2019 speech that “periodic stress testing has turned out to be a less useful supervisory tool to evaluate the risks of smaller and less complex financial institutions.” His efforts were so egregious that in 2021, ahead of Quarles’ term expiring, Senator Warren (D-MA) and Senator Sherrod Brown (D-OH) slammed him for “cutting holes in the safety net” and doing “‘the bidding of Wall Street [for] far too many years.’”
Accountable.US found that during his 2017 confirmation process, Quarles said he believed that there was “a lack of transparency” over the Fed’s stress test processes, saying he would share more information with the public, which critics said would make it easier for banks to pass tests. Quarles added “it’s not giving the answer key,” but “giving them the questions.”