Bloomberg News/Landov
Fed Governor Lael Brainard dissented in favor of activating the buffer.
The Federal Reserve on Wednesday voted not to activate the countercyclical capital buffer on the largest banks in the country, a sign the central bank doesn’t believe there’s a problem with financial stability.
In a statement, the Fed said the board voted 4-1 to affirm the buffer at the current level of zero.
The idea of the buffer is to require banks to hold additional capital in good times. It can be raised up to 2.5% of risk-weighted assets. Then, when economic conditions deteriorate, the buffer can be released and banks have additional capital to support lending and economic activity.
The Fed is required to vote on whether to impose the buffers annually, and the last vote was on Dec. 1, 2017.
Vice Chairman for Supervision Randal Quarles in October said he was against activating the buffers, because the Fed “do not see financial stability concerns as elevated.” Federal Reserve Chairman Jerome Powell made a similar assessment in November, saying he doesn’t see a threat that would undermine the ability of the financial system to perform its critical functions on behalf of households and businesses.
Fed Governor Lael Brainard dissented. A former Treasury official under President Barack Obama, Brainard has been a lone voice calling for strict bank regulation. In December she said imposing the buffer was warranted because cyclical pressures have been building and bank profitability has been strong.
Some regional Fed presidents including the Cleveland Fed’s Loretta Mester, Eric Rosengren of the Boston Fed and the Minneapolis Fed’s Neel Kashkari have supported lifting the buffer, but only the board of governors in Washington, D.C. gets a vote.
Wednesday marked a big day for financial services deregulation, as the Federal Reserve said domestic banks no longer need to pass the so-called qualitative part of the stress test to conduct stock buybacks or make dividend payments.
Also, the Financial Stability Oversight Council of regulators including the Fed and the Treasury Department proposed making it more difficult to make insurers and asset managers “systemically important financial institutions” that require greater scrutiny.
