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Fed Governor Tarullo warns Dodd-Frank reforms losing momentum

Lloyd Blankfein

Federal Reserve Governor Daniel Tarullo warned on Wednesday that the reforms instituted after the 2008 financial collapse are far from completion, adding that the driving effort behind the reforms may be dwindling.

“It is sobering to recognize that, more than four years after the failure of Bear Stearns began the acute phase of the financial crisis, so much remains to be done,” Tarullo said at the Council on Foreign Relations in New York, The Washington Post reports. “For some time my concern has been that the momentum generated during the crisis will wane or be redirected at other issues before reforms have been completed. This remains a very real concern.”

A recent report by law firm Davis Polk revealed that regulators have overshot 67 percent of deadlines for the rules written under the 2010 Dodd-Frank Act.

After attending the Council on Foreign Relations on Wednesday, Tarullo met with bank CEOs, including Jamie Dimon of JPMorgan Chase; Lloyd Blankfein of Goldman Sachs; Brian Moynihan of Bank of America; Richard K. Davis of U.S. Bancorp; James P. Gorman of Morgan Stanley; and Joseph L. Hooley of State Street.

Banks have complained that the recent stress tests conducted by the Fed were done using secretive, ambiguous methodologies that could create new risks. Tarullo said last month, however, that over-sharing information would allow banks to participate in the outcome.

“There is some tension between the desirability of providing more information to firms and the importance of not turning capital planning into a mechanical compliance exercise, in which firms simply run the Federal Reserve model, instead of developing and enhancing their own risk-management and capital planning capacities,” Tarullo said at a Chicago conference, The Washington Post reports.

Banks have also voiced criticism towards a rule that would limit the amount of credit risk to 10 percent between two firms that conduct business with each other.

In an April 27 letter to the Fed, the banks warned that the proposal “would mandate methodologies that markedly depart from well-established and sensible risk management practices, drastically exaggerating actual exposures, and, if adopted as proposed, would require massive unwinding of existing transactions and reduce liquidity in key markets,” according to The Washington Post.

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