Press Releases

McHenry to Chair Powell: Uncertainty from Fed Supervision and Regulation is the Last Thing the Banking System Needs Now

Washington, June 21, 2023 -

Today, the House Financial Services Committee is holding its semi-annual hearing with Federal Reserve Chairman Jerome Powell. In the aftermath of recent bank failures fueled by accelerated interest rate risk, the Fed must avoid pursuing initiatives outside its statutory authority, while redoubling its efforts to stabilize prices and promote financial stability.
Watch Chairman McHenry’s opening remarks here.
Read Chairman McHenry’s opening remarks as prepared for delivery:
“Thank you, Chairman Powell for joining us today.
“Inflation remains broad based and persistent, two troubling trends the Fed expects will continue.
“As you said last week, ‘the process of getting inflation back down to 2 percent has a long way to go.’
“So even though the Federal Open Market Committee did not recommend a rate increase at last week’s meeting, it’s fair to say that the Fed will look to make additional increases in the months ahead.
“As the FOMC again pointed out last week, the labor market still appears tight, with Fed policymakers projecting a rise in the unemployment rate to a still-low 4.1 percent at the end of the year.
“Despite pressure from the left, the Federal Reserve must remain committed to eliminating this stealth tax on American workers and families, and I urge your continued resolve.
“A few weeks ago, Congress took the first step toward getting our fiscal house in order through the Fiscal Responsibility Act. Republicans will continue fighting for sensible spending reductions to combat inflation.
“This stands in stark contrast to Democrats’ spending spree that poured nearly $2 trillion into a supply-constrained economy that was already flush with trillions of savings provided by earlier bipartisan COVID rescue efforts.
“And after keeping interest rates too low for too long, the Fed was slow to address the problem.
“In a stunning about-face, the Fed then raised interest rates by five percentage points in a little over a year—the fastest spike in modern history. 
“This approach introduced accelerated interest rate risk for which companies, workers, and families across the country were not prepared. The bank runs we saw earlier this year are examples of the consequences. 
“Now we are told these runs represent a systemic threat to the stability of our financial system. Add in the commercial real estate exposure facing financial institutions and it becomes very easy to understand the mounting anxiety of consumers and job creators. I share in that anxiety.
“The rapid rise in interest rates, coupled with knock-on effects of the bank failures, have led to signs of a credit crunch across the economy. This would have a damaging impact on consumers and job creators alike.
“To top it off, Vice Chair for Supervision Michael Barr is undergoing a so-called ‘holistic review’ of bank capital requirements.
“If reports are accurate, he is pursuing a massive increase in capital standards for medium and large institutions. This would limit banks’ ability to lend money, exacerbating the looming credit crunch, and starving families and small businesses of the capital they need.
“Financial markets will also bear this strain as they will be forced to absorb nearly $1 trillion in new Treasuries. This has led many to believe the Fed may be called on to help, perhaps through its repo or other facilities.
“Clearly our economy is in a precarious position. From inflation to a potential credit crunch, to substantial balance sheet risks for financial institutions, there is a great deal of uncertainty on the horizon.
“Uncertainty from Fed supervision and regulation is the last thing the well-capitalized banking system needs now. 
“Following numerous supervisory failures, and a new Vice Chair for Supervision at the Fed injecting politics into policy, it is becoming clear that Congress may need to examine separating supervision and regulation out of the Fed and gaining greater oversight and control.”

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