Former Fed Governor Says Banking System is Safer Today than in 2008
Daniel Tarullo, former governor of the Federal Reserve, recently spoke about the current state of the banking system in comparison to the period he regulated back in 2008.
Tarullo, who helped implement the Dodd-Frank law following the 2008 financial crisis, stated that the foundation of the banking system today is much safer than what he observed in 2008.
He noted that there are still questions regarding the earnings potential of various banks for different reasons, but overall, the capital levels and soundness of the institutions are different from what was faced 15 years ago.
Tarullo also discussed the Federal Reserve’s current dilemma regarding raising interest rates while balancing the safety of the banking system.
He stated that the recent significant tightening of financial conditions would put the banking system under more strain, and the Federal Reserve could be in a position to justify a pause in raising interest rates, not due to anxiety about the stability of the banking system, but rather as recognition of the tightening that has already occurred.
Furthermore, Tarullo weighed in on the increasing political battle over bank finances and regulation.
He stated that the debate over whether Silicon Valley Bank would have passed the stress test that it was exempt from under the 2018 change to banking regulations misses the point.
He explained that the premise of the 2018 legislation was that banks between 100 and 250 billion dollars were not systemically important, but recent events have shown that they are, and the potential for depositor runs is a classic systemic concern.
Tarullo also pointed out that this group of banks accounts for significant portions of commercial real estate lending, consumer lending, and residential mortgage lending.