One of the top Federal Reserve officials has resigned from his post effectively immediately. This news comes as quite a surprise to the financial sector, even though it is not entirely unexpected right now. Donald Trump plans to reform the banking sector in the coming months and a lot of heads will roll in the process. Daniel Tarullo feels the time is right to take an abrupt leave from his position.
Federal Reserve Top Official Quits
It has to be said, Daniel Tarullo has been a long-standing regulator for the Federal Reserve. One of his major flaws, however, was how he clearly favored monetary policy, the exact type of behavior that caused the financial crisis of 2008 in the first place. After many years of struggling, he decided not to change his stance on monetary policy by any means, and just keep things the way they have been for far too long.
On the other hand, Tarullo has also been one of the few people who favored conducting regular stress tests to banks every single year. Ensuring these financial institutions can withstand an extensive unexpected shock is a top priority in the financial sector right now. Unfortunately, some of the largest US banks have proven to be incapable of doing so successfully. All of this has caused more stress on the US financial ecosystem and it appears things will only get tougher from here on out.
This marks the third post on the Federal Reserve Board of Governors that needs to be filed in the coming weeks. Considering there are only a maximum of seven members on this board in the first place, it seems as if not too many people are keen on this position right now. Seeing the person with huge control over the largest US banks resign out of the blue comes as quite a shock, although it may pave the way for a stronger ecosystem moving forward. It is evident banks continue to pose a systemic risk to the world’s financial system.
Unfortunately, this news also means the future of financial regulation is in question. Combatting the “too big to fail” problem remains the number one priority to fix the American economy, although it will take a lot of work to do so. Interestingly enough, there are quite a few bank executives who are glad to see Tarullo go, as his invasive measures to ensure banks are financially healthy continued to shift on a nearly monthly basis. Creating stricter rules is one thing, but not communicating them to the industry has created a lot of bad blood.
The bigger question is who will become the next person to take Tarullo’s seat at the table. It is clear the Federal Reserve Board of Governors wills a major shakeup, as two of the current members on the board will complete their fourth term in 2018 and are up for being replaced. A lot of new bills and regulations may be coming to the US economy moving forward, that much seems certain.
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