She had some harsh words for big banks, though:
“While we have seen some evidence of improved risk management, internal controls, and governance at the [systemically important] firms, they continue to have substantial compliance and risk-management issues. Compliance breakdowns in recent years have undermined confidence in the… firms’ risk management and controls and could have implications for financial stability, given the firms’ size, complexity, and interconnectedness. [These] firms must address these issues directly and comprehensively.” She didn’t elaborate on these criticisms, or identify the specific firms she had in mind.
So big banks (which means those subject to LISCC, the Large Institution Supervision Coordinating Committee that was established in the wake of the financial crisis) didn’t get a free pass. Regulators are not signing off… and will continue to be applying pressure.
Smaller banks, though, had a lot to be happy about in Mrs. Yellen’s testimony. We’ve commented many times on the difficulties that smaller banks have faced in the Dodd-Frank era, weighted down by regulations designed to rein in “too big to fail” institutions. Mrs. Yellen emphasized her conviction that bank regulation should not be a “one-size-fits-all” affair:
“Before I became Chair of the Board of Governors and Vice Chair before that, I spent six years as president of the Federal Reserve Bank of San Francisco… Among the lessons that experience reinforced is that when it comes to bank regulation and supervision, one size does not fit all. To effectively promote safety and soundness and ensure consumer compliance without creating undue regulatory burden, rules and supervisory approaches should be tailored to different types of institutions such as community banks.”
Yellen May Push For Regulatory Relief for Small Banks.