By Michelle Price and Pete Schroeder
WASHINGTON (Reuters) – Randal Quarles, who served as the U.S. Federal Reserve’s Vice Chair for Supervision and the country’s most powerful bank regulator, announced Monday he will step down at the end of December, ending a contentious four-year term during which critics say he was far too friendly towards Wall Street.
The exit of Quarles will likely see the Fed reprise the tougher stance it took on the banking industry following the 2007-2009 financial crisis as it tackles thorny issues including climate change risks, bank capital requirements, and fair lending. He announced his plans to resign Monday.
Quarles’ resignation opens another slot for President Joe Biden to fill in what could be a broad remake of Fed personnel.
Appointed in 2017 by former Republican President Donald Trump, Quarles was the first vice chair for supervision, a role created after the financial crisis but never officially filled during President Barack Obama’s administration.
Quarles’s term as head of the Financial Stability Board, an international regulatory group, expires at the beginning of December. Quarles officially stepped down as the head of the Fed’s internal regulatory committee when his term as vice chair for supervision expired in October.
As a former Wall Street lawyer and private equity investor, he was widely seen at the outset as an industry ally who would execute the Trump administration’s pledge to cut red tape.
With the backing of Fed chair and friend Jerome Powell, Quarles went on to ease a raft of post-crisis rules, arguing they were too blunt and onerous, drawing ire from Democrats who said the changes saved Wall Street tens of billions of dollars while increasing systemic risks.
“It is our responsibility to ensure that they are working as intended and, given the breadth and complexity of this new body of regulation, it is inevitable that we will be able to improve them,” he told an audience in 2018.
Among the most contentious changes Quarles spearheaded were revisions to the “Volcker Rule” curbing speculative bank investments; scrapping a requirement for big banks to hold capital against certain swap trades; stripping the Fed of its power to flunk banks on their annual “stress tests” based on subjective concerns; and easing capital, leverage and liquidity rules for all but the biggest lenders.
Quarles, 64, frequently said he had tailored the rules to banks’ specific risks, a stance supported by some regulatory experts. The industry’s stellar performance during the pandemic-driven economic crisis shows he did not weaken the system, he has said.
As chair of the multilateral Financial Stability Board from 2018, Quarles wielded global influence. Under his watch, the body stepped up scrutiny of the ballooning non-bank sector, in particular money market funds.
Wall Street executives, for their part, were often disappointed with Quarles, saying privately he did not go far enough in loosening post-crisis rules, a complaint shared by some congressional Republicans.
Several of his revisions were opposed by fellow Fed Governor Lael Brainard who said they went too far and increased systemic risk, a rare public fissure for an institution known for consensus. Brainard is considered a leading candidate to replace Quarles in the vice chair role.
Whoever succeeds Quarles will have a jam-packed agenda tackling the gamut, from capital rules and fair lending to digital assets, fintech and climate change.
When it came to monetary policy, Quarles generally took Powell’s lead. He backed the chair’s swift introduction of extraordinary monetary stimulus as the COVID-19 pandemic raged last year, and endorsed Powell’s push for a monetary policy stance that allows for higher inflation.
In a May policy speech, Quarles appeared more eager to start a discussion on reducing Fed bond buying than some of his colleagues, due to fears over inflation. But he added that he agreed with the core of Fed officials, who expected much of the recent pressure for higher prices would pass.
“I am not worried about a return to the 1970s,” he said.
A Utah-raised Mormon, amateur pilot and multimillionaire, Quarles was not a typical Washington insider, preferring to spend time at home with his family rather than frequent the capital’s cocktail party circuit.
Described by multiple executives and associates as thoughtful, principled and highly erudite, Quarles frequently peppered his speeches with classical and cultural references, including the occasional Star Trek analogy.
Quarles’ wife, Hope Eccles, is the great-niece of Marriner S. Eccles, Fed chair from 1934 to 1948, a close family connection which Quarles has said imbued him with a deep reverence for the central bank.
(Reporting by Michelle Price and Pete Schroeder, Editing by Franklin Paul and Andrea Ricci)