Yellen brushes off warning, says Fed has authority on global talks

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By Jonathan Spicer

<span class="articleLocation”>Federal Reserve Chair Janet Yellen, in response
to a warning from a U.S. congressman to halt global regulatory
talks in the early stages of Donald Trump’s presidency, said in
a letter the Fed has the authority and responsibility to consult
with its foreign counterparts and does so to benefit the United

The pointed letter to Republican Representative Patrick
McHenry, reviewed by Reuters, suggested the U.S. central bank
will carry on as usual with international discussions on
financial standards even while Trump and conservatives in
Congress move to ease U.S. bank rules adopted after the
2007-2009 financial crisis.

“We will continue to coordinate with the Treasury
Department, which is itself a member of several international
forums related to financial services, such as the Financial
Stability Board (FSB) and the International Association of
Insurance Supervisors, as well as with the other U.S.
supervisory agencies that participate in various international
forums,” Yellen wrote in a Feb. 10 letter to McHenry, who is
vice chairman of the House Financial Services Committee.

“In exercising our longstanding authorities and
responsibilities for consulting with our foreign counterparts,
we share the objective that the whole U.S. government must work
constructively to ensure a strong, stable U.S. economy and
financial system,” she added.

A clash over the Fed’s authority to engage in global talks
on capital standards, for example, could antagonize the U.S.
central bank’s already testy relationship with Republicans who
have criticized its efforts to bulk up financial regulations and
keep interest rates low since the crisis and recession.

Yellen on Tuesday began two days of congressional testimony,
her first since Republicans took control of the White House and
both houses of the legislature. She faces a Senate panel on
Tuesday and the House panel on Wednesday, when McHenry could
again question the Fed’s participation in global forums.

In an unusual Jan. 31 letter to Yellen, the congressman from
North Carolina said the Fed “must cease all attempts to
negotiate binding standards burdening American business until
President Trump has had an opportunity to nominate and appoint
officials that prioritize America’s best interests.”

The Fed operates independently from Congress and the White
House even while lawmakers oversee it. Fed officials such as
Governor Daniel Tarullo, who announced last week he would retire
in April, often participate in forums including the Basel
Committee on Banking Supervision and the FSB.

While Trump and other Republicans have set out to repeal
many post-crisis reforms meant to rein in risk-taking by big
banks and other firms, Fed policymakers and many Democrats have
warned about going too far.

Yellen noted in the letter that standards recommended by
international bodies are not binding unless they are adopted by
U.S. authorities acting under U.S. law, often after a public
comment period. The Fed has at times adopted different domestic
standards than those discussed globally, she added.

“Strong regulatory standards enhance the stability of the
U.S. financial system,” she wrote. “By participating in the
development of international regulatory standards, the Federal
Reserve can influence the standards in ways that promote the
financial stability of the United States and the competitiveness
of U.S. firms.”

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