Powell Defends Efforts to Ease Demands on Wall Street Boards

  • Proposal meant to clarify directors aren’t managers, he says
  • Fed writing rule as critics want Wells Fargo board punished

Federal Reserve Governor Jerome Powell defended the central bank’s proposal to dial back some of the oversight requirements imposed on directors of Wall Street banks after the 2008 financial crisis, arguing that the move isn’t about lowering expectations.

“We do not intend that these reforms will lower the bar for boards or lighten the loads of directors,” he said of the Fed’s Aug. 3 proposal, which aimed at freeing board members to focus on big-picture developments rather than confusing their responsibilities with those of senior managers. “A strong and effective board provides strategic leadership and oversight, which is much more challenging and important than checking off lists of assigned tasks.”

The Fed is trying to address the “widespread feeling that our supervision seems to have downplayed the difference in roles between boards and management,” Powell said Wednesday in remarks prepared for a conference of bank directors in Chicago. Consumer advocates, meanwhile, have argued that the recent scandals at Wells Fargo & Co. over improper handling of customer accounts show boards are still unaware of what’s going on inside their institutions.

Senator Elizabeth Warren, a Massachusetts Democrat on the Banking Committee, has called on Fed Chair Janet Yellen to remove Wells Fargo directors over the bank’s scandals.

Powell is the Fed governor in charge of banking regulations, and the proper role of bank boards has been among the topics he’s focused on during what’s expected to be a temporary stint in that position. Powell is set to be replaced by Randal Quarles, President Donald Trump’s nominee to be the Fed’s vice chairman of supervision, though Quarles still needs Senate confirmation.

‘Granular Information’

“We consistently hear that directors feel buried in hundreds or even thousands of pages of highly granular information, to the point where more important strategic issues are crowded out of board deliberations,” Powell said Wednesday.

The Fed’s proposal outlines principles for effective boards at the biggest U.S. banks, pulling back from post-crisis guidance that put heavier demands on directors and drawing a clearer line between their duties and those of managers. Among other changes, the central bank would stop expecting board members to review all “matters requiring attention” flagged by regulators. The Fed will accept public comment on the proposal through Oct. 10.

Powell said other U.S. banking agencies have agreed to work with the Fed on new joint guidance for bank boards. He added that he expects the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. will be willing to move in the same direction.

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