Outgoing NY Fed President Dudley Warns against Broad Changes to Dodd-Frank Regulations

Federal Reserve Bank of New York ("NY Fed") President and CEO William C. Dudley shared regulatory lessons from the financial crisis and discouraged regulators from making significant changes to the Dodd-Frank Act.

In a recent speech at the Economic Club of New York, Mr. Dudley emphasized the importance of monitoring (i) innovations that may create increased risk and (ii) incentives that influence the behavior of market participants. Mr. Dudley asserted that financial institutions must be prepared to handle significant market stress, and that adjustments must be made in response to indications of instability. He added that central counterparties are essential to ensuring the effective operation of the financial markets (particularly for purposes of resolution and recovery).

Mr. Dudley cautioned against broad changes to Dodd-Frank. He expressed support for regulatory relief for small banks, including for exempting small banks from the Volcker Rule, but argued that changes to Dodd-Frank must be made "with a paring knife, rather than a meat cleaver." Specifically, Mr. Dudley encouraged the preservation of (i) high capital and liquidity requirements for systemically important banks, (ii) provisions mandating the central clearing of standardized over-the-counter derivatives, and (iii) Federal Reserve oversight of systemically important entities.

In conclusion, Mr. Dudley reasserted the necessity for a viable resolution regime capable of improving efficiency while protecting against the unexpected.