Federal Reserve Chair Janet Yellen appeared Tuesday before an uncommonly collegial hearing of the Senate Banking Committee, but the lack of outward drama masked the fact that lawmakers from both parties were using her testimony to lay the groundwork for a broader battle over the future of regulatory reform.
Yellen faced questions on scrapping the Fed's most important stress test, whether regulatory burden was truly keeping banks from lending, and whether she supported a recent Trump administration executive order calling for a sharp reduction in regulation.
In what is historically true for any Fed chairman, Yellen provided plenty of ammunition for both sides, noting that lending appeared robust while also supporting the aims of President Trump's recent actions.
Following is a guide to the key points at the hearing.
Republicans Likely to Target CCAR
Sen. Richard Shelby, R-Ala., who chaired the committee in the last Congress, asked whether, given the Fed's recent changes to its annual Comprehensive Capital Analysis and Review stress testing regime, the central bank would be willing to make even greater alterations.
"As a regulator, you will continue to monitor that, and if it needs to be tailored, you'll do whatever it takes?" Shelby asked.
Yellen replied, "Yes, we believe very strongly in tailoring to make sure regulations fit the risk profiles of particular institutions, especially for smaller institutions."
But Sen. Pat Toomey, R-Pa., went further, saying that he had "big problems" with CCAR because he views it as costly and redundant. While the Dodd-Frank Act Stress Test is required by the Dodd-Frank Act, CCAR is not, he said, and since capital levels have risen substantially since the crisis, Toomey asked Yellen if she would consider discarding CCAR altogether.
"Isn't CCAR at least somewhat duplicative, and since it is very costly and not mandated by statute, would you consider bringing it to an end at some point in the foreseeable future?" Toomey asked.
Yellen defended the test as a "key part of the regulatory process."
"It's been a cornerstone of our efforts to improve supervision, especially with the largest banking institutions," she said.
Those questions came as House Financial Services Committee Chairman Jeb Hensarling, R-Texas, outlined potentially broad revisions to the Fed's stress testing regime in a memo suggesting changes to last year's Financial Choice Act, including rolling back the applicability of the qualitative aspects of the test and limiting the Fed's ability to require banks who fail the test to forgo paying dividends to their shareholders.
Is Dodd-Frank Hurting Banks' Ability to Lend?
Two of the top Democrats on the committee, ranking member Sherrod Brown of Ohio and Sen. Elizabeth Warren of Massachusetts, asked Yellen a series of questions about whether banks are making loans in an effort to disprove claims made by Trump that the Dodd-Frank Act has curbed credit availability.
Yellen referenced a number of statistics, including a small-business survey that suggested that only 4% of small-business owners said they were unable to receive all of the loans they wanted.
Yellen further added that commercial and industrial lending have rebounded to pre-2008 levels and overall lending on banks' portfolios has rebounded to pre-crisis levels.
"So the data do not back the president up there," Warren said.
Republicans on the committee did not concede the point. Sen. Thom Tillis, R-N.C., said there is research suggesting that the slower rate of small-business creation and expansion that has accompanied the slow-growth post-crisis environment has led to lower demand for small-business loans.
"Is it possible that the reason why 4% of people are saying they're not getting the loans they wanted is because there are far fewer people asking for loans for investing in their businesses?" Tillis asked.
Yellen acknowledged the point. "We've had a slowly growing economy, and for small businesses, sales growth [doesn't] justify significant expansion plans."
Yellen Broadly Agrees with the Aims of Trump Regulatory Orders
Chairman Mike Crapo, R-Idaho, probed Yellen on Trump's recent executive order directing the Treasury secretary to convene the Financial Stability Oversight Council and have its members identify ways to streamline and simplify their rules. The noted goals laid out in the order include empowering consumers, preventing bailouts, fostering economic growth and "vibrant" markets, advancing U.S. interests in global regulatory discussions, and "restoring public accountability" at regulatory agencies.
Yellen said she thought those goals were laudable, and said the Fed will do its part to further them.
"I certainly do approve of the core principles; they enunciate very important goals," Yellen said.
When Shelby asked her about the applicability of President Trump's two-for-one executive order requiring federal agencies to repeal two rules for every new one issued, Yellen said that, while the order does not to apply to the Fed or any other independent regulatory agency, the central bank shares its goals.
"We are constantly looking for way to mitigate the regulatory burden," Yellen said. "That is an important goal and one we will strive…to achieve."
Senate More Likely to Play Nice in Dodd-Frank Reform
As opposed to the marked animus in the House Financial Services Committee regarding Dodd-Frank reform, the tenor and focus of the questions in the Senate Banking Committee suggest that any legislative reform that ultimately makes its way to the upper chamber will likely not be as radical as the proposals roiling in the lower chamber.
Both Brown and Crapo noted in their opening statements that they were open to and hoped for consensus solutions to shared problems when it comes to financial regulation. Crapo said his goal was to "identify some bipartisan bills we can quickly get signed into law," while Brown said that "everyone on this dais can agree there are parts of Wall Street reform that can be improved."