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In testimony before the Senate Banking Committee, Federal Reserve Board ("FRB") Vice Chair for Supervision Randal K. Quarles provided legislators with an update on the effects and wind-down of programs implemented in response to the pandemic.
Mr. Quarles stated that the FRB (i) has shut down nearly all of its emergency lending facilities, (ii) has allowed temporary modifications to leverage rules to expire and (iii) plans to shift large banks back to its regular capital regulation program. Mr. Quarles credited the post-2008 stress-testing program with banking institutions' adequate preparation for the economic impact of the COVID-19 pandemic, especially considering that it was the "first real-world test" of the regulatory regimes created after the 2008 financial crisis. Mr. Quarles underscored the strength of the U.S. banking system today, citing higher levels of liquidity and capital than it had in 2020, with more than $100 billion in additional loan loss reserves that enable the system to be "well-positioned to weather future shocks."
Mr. Quarles described the importance of analyzing the events of the last year, and recommended closer examination of the following areas:
- stresses on short-term funding markets;
- prime money market mutual funds;
- Treasury markets;
- the design and measurement of the supplementary leverage ratio;
- the shift in customer practices and patterns in financial services use; and
- the evolving relationship between banks and nonbank financial institutions.
Mr. Quarles also noted that the FRB's two highest priorities for 2021 are:
- finalizing the Basel III reforms for international banking organizations; and
- implementing the "long-overdue" transition from LIBOR.
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