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Daniel Tarullo, Wall Street's top regulator, quits Fed in boon to Trump


Platinum Bling
Platinum Bling
Apr 5, 2010
Daniel Tarullo, Wall Street's top regulator, quits Fed in boon to Trump


Daniel Tarullo, the Federal Reserve official who spearheaded the push to make banks safer after the 2008 financial crisis, plans to step down in early April, amplifying President Donald Trump's ability to reshape the central bank's oversight of Wall Street and monetary policy.

As the Fed governor who handled regulation, Tarullo often took the lead in implementing new rules and in defending the government's response to the crisis before Congress.

Because he earned a reputation as one of the toughest supervisors of banks, the industry quietly welcomed the news on Friday (Saturday AEDT).

Tarullo's departure means Trump will soon get to fill three of the Fed's seven board positions, as there are two existing vacancies. All governors have votes on the Federal Open Market Committee that sets US interest rates.

In addition, Janet Yellen's term as chair expires in February 2018, followed by Stanley Fischer's term as vice chair in June of next year. The openings give Trump the opportunity to put his stamp on the world's most powerful central bank.

"Dan led the Fed's work to craft a new framework for ensuring the safety and soundness of our financial system following the financial crisis and made invaluable contributions across the entire range of the Fed's responsibilities," Yellen said in a statement.

Tarullo, 64, is leaving well short of the 2022 end of his term. His time on the Fed board came during one of the busiest periods in the central bank's history, with massive demands from the 2010 Dodd-Frank Act to overhaul the US financial system in an effort to prevent a repeat of the 2008 meltdown.

The Fed and other agencies put sweeping capital, liquidity and risk-dampening rules in place that have profoundly changed how banks do business.

In his tenure at the Fed, the longtime professor was well known for his quick temper and for delivering lengthy speeches that were heavy on theory and footnotes.

And when it came to interagency work on regulating, he was consistently hard on the biggest Wall Street firms, especially in demanding that megabanks maintain ample war chests of capital and easy-to-sell assets so they'd never again come knocking on taxpayers' doors.

'Alpha dog' of financial regulators
In a two-sentence resignation letter sent Friday to Trump, Tarullo said that it has been "a great privilege" to work with former Fed chairman Ben Bernanke and chair Yellen during such a "challenging period for the nation's economy and financial system". He said he'd leave "on or around April 5".

During his first months as a governor, even before Congress approved Dodd-Frank, Tarullo called for a "major reorientation of our regulatory and supervisory system". Since then, he often carried the baton to make that overhaul happen, weighing in on stress testing, tough capital standards and plans for how Wall Street firms could safely collapse without threatening the broader financial system.

More recently, Tarullo - once labelled by a lawmaker as the "alpha dog" of financial regulators - has acknowledged that some of the rules he implemented have been overly tough on smaller banks. He most notably suggested that Dodd-Frank's $US50 billion asset threshold for lenders to receive the tightest scrutiny may have been set too low.

In 2016 speeches, he advocated going easier on community banks and said there is probably room for "refinements" in how authorities have addressed risks to the financial system.

Still, Trump's calls to dismantle Dodd-Frank are a direct challenge to Tarullo's legacy at the Fed. Tarullo recently warned "against backsliding on the considerable progress that has been made".

As one of the three board vacancies, Trump is expected to name a vice chairman of supervision - a never-filled role established by Dodd-Frank - who will largely assume the job vacated by Tarullo.

"He showed that the assertive application of Dodd-Frank could really change the regulatory environment," Vincent Reinhart, chief economist at Standish Mellon Asset Management in Boston, and a former senior Fed staff member, said of Tarullo. "His leaving just raises the question of how much could an equally assertive vice chair unwind what he did."

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Tarullo taught banking law at Georgetown University before President Barack Obama tapped him to join the Fed. Prior to Georgetown, he was an assistant to President Bill Clinton, helping him devise his international economic policy and serving on his National Economic Council. Tarullo had also worked as assistant secretary of state for economic and business affairs in the 1990s.

The Boston native's earlier career included stints at the Department of Justice and in the Commerce Department, work on the staff of Democratic stalwart Senator Ted Kennedy and teaching at Harvard Law School.

While Tarullo's departure will be felt most on regulation, the lawyer held his own in debating monetary policy among the PhDs at the FOMC. When the committee met in November 2010 and launched a second round of asset purchases to support the economy, Tarullo argued that a long period of weak growth and high unemployment was wreaking lasting damage - an idea that was taken up as the consensus six years later.

Tarullo was also known for taking a cautious approach in raising interest rates.

His planned resignation is the second major departure announced by the Fed this week. On Wednesday, the central bank said general counsel Scott Alvarez, who played a key role in approving many of the emergency measures taken by the Fed during the financial crisis, would retire later this year.

Daniel Tarullo gives banks generous parting gift


(Reuters Breakingviews) - Daniel Tarullo is giving banks a generous parting gift. The tough Federal Reserve governor told President Donald Trump on Friday that he is resigning five years before his term expires in 2022. Tarullo was the most influential architect of post-crisis financial reform, including the stress tests. His exit may be one of the biggest determinants of how banks are overseen.

Since his appointment by Barack Obama in 2009, Tarullo has been a regulatory force. Although he did not hold the title of vice chairman of bank supervision, it was a role he essentially served. Critical of what he saw as the central bank's lax approach to watching over financial institutions, Tarullo worked to centralize control in Washington, diminishing the role of the Fed's New York branch.

He pushed for tougher capital rules than international Basel standards require, often describing the Fed's version as "super-equivalent." In 2014, for example, the Fed approved a 6 percent supplementary leverage ratio, twice as stringent as the global criteria, for the insured deposit units of the largest banks.

Wall Street chieftains routinely balked at the annual stress tests, complaining they are too opaque and arbitrary. Citigroup, Deutsche Bank and others were tripped up by the so-called qualitative part of the exams, which measure operational risk and other subjective factors. Failing means banks can't pay additional dividends or buy back more shares, putting extra pressure on management. Last year, Tarullo announced proposals that could make the tests even tougher, including adding what he called a stress capital buffer.

Unlike a softening of the Dodd-Frank law, which Trump and many Republicans advocate, most changes to the stress tests don't need congressional approval. The central bank's staff, which has been led by Tarullo, devises the scenarios and assesses the results. The Fed also has leeway on how strongly to enforce other rules or guidance, such as restrictions on leveraged lending.

In all probability, Tarullo's power would have been weakened by the addition of a new vice chair of supervision. By deciding not to stick around, though, he has left another big opening for Trump to fill. Whoever succeeds Tarullo will be in a better position to roll back regulation than any attempt to reform Dodd-Frank.