Oct. 9, 2013
Next Fed Chair Has Opportunity to Rein in Big Banks, Protect Consumers
Note: Today, President Barack Obama is expected to announce his intention to nominate Janet Yellen to be chair of the Federal Reserve Board of Governors.
WASHINGTON, D.C. – Janet Yellen, President Barack Obama’s pick to chair the Federal Reserve Board of Governors, is well-qualified and well-suited to be chair, Public Citizen said today.
“She is not known as a creature of Wall Street like Larry Summers, Tim Geithner or Robert Rubin, who believe in the failed notion that unregulated financial institutions that engage in excessively risky activities somehow serve our economy,” said Robert Weissman, president of Public Citizen.
Added Lisa Gilbert, director of Public Citizen’s Congress Watch division, “Yellen’s nomination as the first female chair of the Fed is historic and a welcome addition to what traditionally has been a male-dominated institution.”
In her nomination hearings, Yellen will have to answer questions about how she will view her new position, given the fact that we are three years after the passage of The Dodd-Frank Wall Street Reform and Consumer Protection Act, and there are still many aspects of the financial system that are not being policed adequately.
“Especially after the passage of Dodd-Frank, the Fed has a critical role in regulating and supervising large banks and other systemically important financial institutions, as well as protecting consumers and mitigating risks to financial stability,” said Micah Hauptman, financial policy counsel for Public Citizen’s Congress Watch division.
The Fed has much work to do, but it also has an enormous opportunity to rein in risky practices and make banks safer, Public Citizen maintains. To do this, a strong Fed chair should:
- require banks to bolster their capital buffers, beginning by requiring the largest and most complex institutions to retain dividends instead of paying them to shareholders;
- reduce banks’ overreliance on short-term debt that poses a risk of runs during stress;
- prohibit banks from owning physical commodities, which discourages competition in the marketplace and harms commercial end-users and consumers;
- work with other financial regulators to put in place a strong Volcker Rule that protects banks and the financial system from inordinately risky trading activities; and
- make banks smaller, simpler and safer so that they are no longer “too big to fail.”
Yellen must answer how she plans to address these issues, and if confirmed, immediately take the necessary steps to help prevent future crises and build a strong, stable financial system.