Cheyenne, OK. – Today, Congressman Frank Lucas (OK-03) joined his colleagues on the House Committee on Financial Services for a hearing with Federal Reserve System Chairman Jerome Powell and U.S. Department of the Treasury Secretary Janet Yellen on the Federal Reserve’s and the Treasury’s economic pandemic response.
Lucas questioned Federal Reserve Chairman Jerome Powell about how the temporary modifications to the supplementary leverage ratio helped improve U.S. Treasury market conditions over the past year, and the potential timeline of additional modifications. On March 19th, the Federal Reserve announced that the temporary change to its supplementary leverage ratio for bank holding companies would expire, as scheduled, on March 31st.
Lucas, the Ranking Member of the House Committee on Science, Space, and Technology and former Chairman of the House Committee on Agriculture, also questioned Chairman Powell and Treasury Secretary Janet Yellen about the Federal Reserve’s and Treasury’s actions addressing climate change, voicing his concerns that financial regulation intended to push environmental policy objectives could have adverse impacts on agriculture and energy industries.
Click here to watch Lucas’ Q&A.
On the supplementary leverage ratio
Lucas: This past Friday, the Fed announced that the temporary exclusion of Treasuries and reserves from the supplementary leverage ratio will expire at the end of the month. The announcement also stated that the Fed will seek public comment on potential S.L.R. modifications. Chairman Powell, could you comment on if the exclusion of Treasuries and reserves over the past year helped to improve U.S. Treasury market conditions and banks’ ability to provide credit? And secondly, to the extent possible, could you elaborate on the timeline of potential S.L.R. modifications that may come in the near future?
Powell: The Treasury market was experiencing significant disfunction at the height of the crisis, and we did a number of things, particularly we bought a lot of U.S. treasuries to restore function- and so did many other large countries like us. If you look back, we threw the kitchen sink at it. It’s difficult to say just how helpful it was and any case that danger has since now long passed.
Because of the substantial increase in reserves and treasuries, the leverage ratio is rapidly becoming the binding constraint from a capital standpoint and that wasn’t our intention at the Fed- we like risk-based capital to be binding because it forces banks to manage their risks more carefully.
On the Federal Reserve and U.S. Treasury addressing climate change
Lucas: The Third Congressional District of Oklahoma is a commodity driven economy – its Ag and its Energy. There is concern in my District that the financial regulators may be moving toward regulation and supervision with environmental policy objectives, potentially discouraging banks from doing business with entire sectors of the economy. Chairman Powell, could you respond to this concern? Secretary Yellen, could you also provide your thoughts on this concern?
Powell: It’s been a long-held policy of the Fed that we don’t tell banks what legal businesses they can lend to or order them to lend to. That’s not what we do. We are at a very early stage of understanding the risks to regulated financial institutions from climate change. It is a risk that we think the public has every right to expect that we’ll assure that the banks do manage over time. Again, it’s in early stages.
Yellen: Climate change is a top priority for the Biden Administration. We agree that financial regulators should be accessing the risk to financial institutions through stress-testing and other techniques and that investors need disclosure of risk, but we have no plan to regulate what lending or investments can be done.