(In 12th paragraph, corrects month of Yellen speech to June
By Emily Stephenson
WASHINGTON, Oct 9 (Reuters) - Big banks hoping for a break
from the U.S. Federal Reserve's tough line on regulation will be
disappointed by Janet Yellen, President Barack Obama's choice to
lead the central bank.
Yellen's primary focus will likely be monetary policy and
getting Americans back to work, banking experts said, but she is
not expected to divert the Fed from its current course of
insisting on robust bank capital levels and risk reduction.
Yellen's nomination was "a dark cloud for the largest U.S.
banks hoping for a reprieve from tough new rules," Karen Shaw
Petrou of Federal Financial Analytics, a consulting firm, said
in a note to clients on Wednesday.
"Yellen supports much of what the Fed has been doing with
regard to the very tough rules," Petrou said in an interview.
Yellen has been portrayed as a tougher steward of big banks
than former Treasury Secretary Larry Summers, who was said to be
Obama's first choice to lead the Fed. He withdrew from the
running in September after Senate Democrats raised concerns that
Summers would be soft on Wall Street, and they instead publicly
If confirmed by the U.S. Senate, Yellen would be the first
woman to serve as head of the Fed. She would take over from
Chairman Ben Bernanke at a time when the agency faces a number
of tricky issues that go well beyond monetary policy.
The Fed is tackling a laundry list of new rules for banks
after the financial crisis, many of which were called for by the
2010 Dodd-Frank Wall Street reform law and some that go beyond
those prescribed rules.
Regulators are finalizing capital requirements for the
biggest banks that are tougher than a globally agreed-upon
framework, a ban on proprietary trading known as the Volcker
rule, and plans for how to handle giant failing banks in a
The Fed in July announced it was working on four new rules
that would further curtail risk-taking by the largest banks,
including tough leverage restrictions, reforms to short-term
funding, and a capital surcharge.
Yellen, who previously led President Bill Clinton's Council
of Economic Advisers and the Federal Reserve Bank of San
Francisco, has won praise from reform advocates for spotting
problems in the subprime mortgage market early on.
Publicly, she has supported efforts to force banks to rely
less on debt for funding and called for other actions to prevent
them from becoming too big to fail.
Beyond that, her views on how regulators should crack down
on banks are less well known. In a speech in June, she showed
herself to be inside the Fed mainstream on regulation issues,
largely approving of its current course of action.
During brief remarks on Wednesday, after Obama formally
announced her nomination, Yellen did not explicitly bring up
bank regulation, saying only that "we can and must safeguard the
She will likely be asked to elaborate on that during
confirmation hearings before the U.S. Senate.
"My biggest question to Ms. Yellen will be, will she
actively push for higher capital requirements for mega-banks
than regulators have announced," Senator David Vitter, a
Louisiana Republican, said in a statement.
Bernanke has delegated much of the agency's work on
regulation to Fed Governor Daniel Tarullo, who has taken a
particularly hard line on big-bank risk-taking.
Oliver Ireland, who was associate general counsel at the Fed
when Yellen was a member of its board, said that dynamic was
unlikely to change.
"Is she going to step in and aggressively insert herself in
that process along the way if Dan stays there and keeps doing
what he's been doing? Absent some fundamental disagreement by
them, I tend to doubt that," said Ireland, who is now a partner
with the law firm Morrison Foerster.
(Reporting by Emily Stephenson, Douwe Miedema, and Peter
Rudegeair, additional reporting by David Lawder; Editing by
Karey Van Hall and Tim Dobbyn)