"The rules must be tailored, for the size and role of each bank". This was stated by the future President of the Federal Reserve (Fed), the central bank of the United States, Jerome Powell who will take the place of Janet Yellen who, in the month of February on a natural expiry, will conclude her mandate.
Powell, designated by the President Donald Trump, as required by the procedure, he is facing a series of hearings before the American Congress which precede and confirm his nomination. In the Senate hearing on the issue of supervision he was very clear and equally clear: “I wouldn't call it deregulation, but it's time to pause and review what has been done. We need to take stock and make sure what we're doing makes sense,” Powell added that he is neither an extremist nor a newcomer to the Fed.
Instead, a moderate Republican chosen in the position he currently holds by the Democratic presidentor Barack Obama, as well as a veteran of the top management of the Central Bank, always at Yellen's side during the years of her mandate. Therefore, a person above all suspicion, Powell also denied that we should still continue to talk about institutions that are too big to fail, of that is, banks capable of destabilizing, with its own failure, the entire system and for this reason destined to always and in any case be saved at any cost.
These are important declarations to which, again Powell, added the announcement that “we will continue to consider appropriate ways to lighten the burden of the rules maintaining key reforms”. His biography and the role he held in the Fed confirm that the future regulatory policy, but also the monetary one, of the central bank will unfold in full continuity with the previous one. After all, already at the end of the summer – we had underlined this with satisfaction – Yellen, taking on the problem of development and economic growth, had leaked the possibility of “potential adjustments”, even independently of the Basel Committee, on the regulatory side.
In August, at the Jackson Hole Economic Policy Symposium, Yellen spoke of “changes aimed at narrowing the perimeter of participating institutions, especially smaller institutions, and better aligning supervisory stress tests with the regulatory capital requirements” providing for measures to reduce “the unnecessary regulatory complexity” which concerns a good part of banks.
Last week, in what was probably his last speech to Congress as Fed chairman, when he encouraged Congress to "consider laws that can support productivity and increase participation in the workforce”, returned to the theme of the proportionality of the rules and did so in the belief that this is an important element because only by solving the underlying causes of low productivity and slow growth of the workforce and counting among these also the issue of access to credit, can "provoke a sustained impetus to economic growth".
Diversity in the banking system is, therefore, a matter of law and in fact in the United States. The prudential rules, excessively complex and restrictive, applied without distinction to all credit institutions - an element now shared in that country - distort the competitive system and increase the difficulties of accessing credit by Small and Medium Enterprises with disastrous results on the whole economic system. The principle of proportionality is therefore concretely on the agenda. After all, these are banks that, by operating on a smaller scale and, therefore, less complex, are more easily monitored and, therefore, less problematic in terms of security.
It is clear in the United States – and we hope soon also in Europe – that the reduction of risk will be a consequence of the recovery and economic growth and not vice versa. But the recovery must be encouraged and not stifled in the bud by making it difficult, if not impossible, for the banks to disburse credit which, on the contrary, must be put in a position to play the fundamental role of financing and supporting the real economy.
The Fed and the Bank of England move, therefore, in unison following two fundamental guidelines such as the calibration of the rules on the one hand and growth and employment on the other. On the contrary, the ECB is following from afar with the intention of imposing ever more restrictive and deflationary rules which risk holding back growth and employment.
** The author is Secretary General of the National Association of Popular Banks (Assopopolari)
