MNI BRIEF: Fed's Quarles Rejects Call For CCyB​

Federal Reserve Vice Chair for Supervision Randal Quarles Thursday rejected calls to reconsider activating a countercyclical capital buffer, a tool that other Fed officials have argued should have been put in place before the coronavirus hit the banking system last year.

"There were many calls from outside the Fed for us to activate the CCyB in the years before the COVID event," said Quarles. "It is clear now that those calls were mistaken." The Fed official said "by any measure" the bank regulatory system did "quite well" in the face of Covid, while still singling out runs on prime money funds and commercial paper as "particularly concerning," and adding that policymakers will also focus attention on non-banks.

"The Federal Reserve should only turn on the CCyB in times of significant irrational exuberance; for example, in the face of a self-reinforcing cycle of borrowing and asset prices of the kind we saw in 2004–06," he said in prepared remarks for a speech to bank lobbying groups. Eric Rosengren of the Boston Fed has pushed to activate the tool.