Priya Jaiswal is a recognized authority in Banking, Business, and Finance, with extensive expertise in market analysis, portfolio management, and international business trends. We are excited to gain her insights on the various challenges and opportunities facing the Federal Reserve today. The following discussion delves into her perspectives on economic policies, banking regulations, and the importance of transparency and innovation in the financial sector.
What are your main priorities if confirmed as the Federal Reserve Vice Chair for Supervision?
One of my primary goals is to reform and refocus supervision in order to address core and material financial risks effectively. It’s crucial that we ensure our supervisory practices are clear and grounded in applicable law so that regulated institutions know what to expect. Additionally, restoring regulatory tailoring is another priority. This means customizing our regulatory approach based on the size, risk, business model, and other factors specific to each institution. Finally, I aim to promote transparency and accountability within the financial system, while also ensuring a viable path for innovation.
Can you explain your stance on deregulation amidst the current economic turmoil caused by tariff volatility?
The current economic environment undoubtedly presents complex challenges, but it’s key to navigate these by ensuring our regulatory framework is both effective and adaptive. Deregulating indiscriminately could be dangerous, but thoughtful adjustments to regulations can provide the necessary flexibility for banks to manage emerging risks while continuing to function robustly. Transparency and thorough cost-benefit analysis will be instrumental in determining which regulations should be modified to maintain stability without stiflying growth.
How do you perceive tariffs affecting financial stability in the United States?
The impact of tariffs on financial stability is quite significant. Tariffs can introduce volatility and uncertainty into markets, affecting financial institutions’ resilience and operational capacity. They can lead to increased costs for businesses, potentially reduced growth, and variable employment levels. The interplay between these factors can strain financial stability, highlighting the need for vigilant monitoring and adaptive regulatory responses.
Why did you respond that the economic effects of tariffs are still unclear?
The economic effects of tariffs depend heavily on how they are implemented, their duration, and the sectors they impact. Since these variables are subject to change and can evolve differently, it is challenging to predict their precise outcomes with certainty. It is also essential to understand how industries and businesses will adapt to these policies over time before a comprehensive assessment can be made.
Do you think the current economic foundation is strong enough to withstand potential adverse impacts of tariff policies?
While the current economic foundation shows strengths such as low unemployment and robust growth in certain sectors, potential adverse impacts from tariff policies could test this foundation. Continuous and adaptive supervisory measures are critical to ensure that we can promptly identify and address emerging threats, maintaining the integrity and resilience of our economic structures.
Should an immediate stress test be conducted for big banks to assess their resilience to a deep and prolonged recession triggered by tariffs?
Stress testing is a valuable tool to understand how well our financial institutions can endure significant economic shocks. While we have an established process for stress testing, it may be worth evaluating whether additional, targeted stress tests are necessary in light of recent developments, such as tariff-induced economic volatility. This would provide deeper insights and help reinforce the robustness of our banking system.
If the Federal Reserve already has a process for stress testing, do you believe it is sufficient given the recent economic changes?
Our current stress testing processes are thorough, yet it’s imperative to regularly review and adjust them to reflect the evolving economic landscape. Enhancements might be necessary to capture new risks and ensure that our financial institutions are prepared for unconventional and emerging challenges.
How do you respond to the assertion that you have been prioritizing Wall Street over Main Street in your previous tenure at the Fed?
It is crucial to strike a balance between ensuring the stability of large financial institutions and addressing the needs of smaller community banks and their customers. My focus has always been on creating an equitable regulatory environment that supports economic growth across all levels of society. Recognizing the distinct roles and needs of both Wall Street and Main Street helps ensure a resilient and inclusive financial system.
What steps have you taken or plan to take to ensure that banking regulations represent the interests of Main Street as well?
Regulatory tailoring is one method to ensure regulations are appropriate for community and regional banks. I’ve advocated for a customized approach that acknowledges the unique challenges and contributions of smaller institutions. Additionally, promoting transparency and opportunities for public input in the regulatory process helps align regulations with the diverse needs of Main Street.
What measures would you put in place to bring accountability and transparency to the Federal Reserve?
Ensuring accountability and transparency involves setting clear regulatory expectations and maintaining open communication channels with all stakeholders. Incorporating comprehensive cost-benefit analyses in our decision-making processes, and allowing for independent third-party reviews when necessary, will help foster confidence and trust in our regulatory framework.
Can you explain your commitment to maintaining the Fed’s independence with respect to monetary policy and its responsibilities related to the economy?
The independence of the Federal Reserve is foundational to its credibility and effectiveness. My commitment involves safeguarding this independence by ensuring that our policies are guided by data, research, and established economic principles, free from political influence. Balancing cooperation with other regulatory bodies and maintaining autonomy over our core functions will be pivotal.
Would you submit regulations to the Office of Management and Budget for review or involve the Treasury Department in the development of those rules?
While it is essential to maintain consistency across regulatory bodies, the independence of the Fed in rule-making is crucial. Coordination with entities like the OMB and Treasury can be beneficial, but the Fed should uphold its independent decision-making authority to ensure regulations serve the broadest economic interests.
How important is regulatory consistency across different bodies, and how would you achieve this?
Regulatory consistency is vital to providing clear, predictable guidelines for financial institutions. Achieving this involves regular dialogue and coordination with other regulatory bodies to align standards where appropriate, while ensuring that each regulator’s unique mandate and perspective are respected and preserved.
What do you perceive as the benefits of implementing a cost-benefit analysis in the Fed’s regulatory duties?
Cost-benefit analysis helps ensure that regulations achieve their intended outcomes without imposing unnecessary burdens. By systematically evaluating the impacts of regulatory changes, we can design more effective, efficient rules that target specific problems, mitigate adverse consequences, and foster economic growth.
Should an independent third-party review be conducted to assess the problems encountered with the examination of Silicon Valley Bank prior to its failure?
An independent third-party review could provide valuable insights into any shortcomings in our supervisory processes. Identifying and addressing these issues is crucial for preventing similar failures in the future and for enhancing the overall effectiveness of our regulatory framework.
How would you reform and refocus supervision to better address core and material financial risks?
Reforming and refocusing supervision involves enhancing the clarity and consistency of supervisory expectations, improving examiner training, and fostering a proactive rather than reactive approach to risk management. By concentrating on the most significant risks, we can better protect the financial system’s stability and reliability.
What shortcomings in supervision do you believe need to be addressed immediately, and how?
Improving examiner training, ensuring clear regulatory standards, and enhancing our responsiveness to emerging risks are immediate priorities. By addressing these areas, we can strengthen the overall effectiveness of our supervisory efforts and reduce the likelihood of future financial disruptions.
Can you discuss your pragmatic approach to ensuring regulations are efficient and effective?
A pragmatic regulatory approach emphasizes clarity, consistency, and flexibility. By focusing on identifying specific problems, assessing potential impacts, and considering market dynamics, we can craft regulations that achieve desired outcomes efficiently and effectively, without unintended negative consequences.
Why is it important for regulations to identify and target specific problems, and how can regulators balance costs and benefits while avoiding unintended consequences?
Targeted regulations address specific issues more effectively while minimizing broader economic disruptions. Balancing costs and benefits involves thorough analysis, stakeholder consultations, and flexibility to adjust rules as needed to mitigate unforeseen adverse effects, ensuring that regulations foster stability and growth.
What is regulatory tailoring, and why is it particularly crucial for community and regional banks?
Regulatory tailoring involves customizing regulations to fit the unique characteristics of different types of banks. This is especially important for community and regional banks, which have different risk profiles and operational challenges compared to larger institutions. Tailoring ensures that these banks can continue to serve their local communities effectively without facing undue regulatory burdens.
How would you promote innovation within the banking system, balancing new technology, improving products and services, and lowering costs?
Promoting innovation requires a supportive regulatory environment that encourages experimentation while managing risks. By setting clear guidelines, providing flexibility for emerging technologies, and fostering collaboration between regulators and financial institutions, we can drive advancements that improve products and services and reduce costs for consumers.
What specific experiences from your time as Kansas’ state bank commissioner and vice president of Farmers & Drovers Bank do you bring to the Fed role?
My experience in Kansas provided me with valuable insights into the challenges faced by smaller banks and the importance of tailored regulations. Managing a community bank offered practical perspectives on balancing regulatory compliance with business objectives. This background will inform my approach to creating a balanced, inclusive regulatory framework at the Fed.
Do you have any advice for our readers?
In this dynamic and often challenging economic environment, staying informed and adaptable is crucial. Understanding the broader economic context and how regulatory changes can impact individual and business financial decisions is essential. Always seek diverse perspectives, stay engaged with ongoing economic discussions, and be proactive in managing risks.
