During Wednesday’s Senate Banking Committee, Sen. Mike Rounds (R-SD) questioned Federal Reserve Chair Jerome Powell about the planned building renovations for the Federal Reserve.
00:00Thank you, and I'll be keeping us to pretty strict five minutes since we have a lot of senators who want to and deserve time with the chair of the Fed.
00:08So, Senator Rounds, we'll start with you.
00:12Thank you, Mr. Chairman, for the courtesy.
00:14Chairman Powell, first of all, let me just touch base on, I'm just curious, a couple of items almost of housekeeping nature.
00:23The, with regard to Wells Fargo, was that asset cap and removing it, that was a unanimous vote by all seven Fed governors, as I recall?
00:37Yes, it was.
00:38Okay, thank you.
00:41I really appreciated the Chairman bringing up the fact that you have identified reputational risk and have addressed it.
00:50I think that was a really important item for the Fed to do, following up on both the OCC and the FDIC's actions.
00:58As you know, past Fed materials like the supervision and regulation report often embedded reputational risk within the management component of the CAMELS rating system without clear metrics or accountability.
01:10That kind of ambiguity can chill lawful activity and distract from your core mission, monitoring capital, liquidity, and operational resilience.
01:18Now that the Fed is moving toward a more objective and disciplined approach to supervision, how will you make sure that this change is fully implemented at the examiner level?
01:29And more broadly, what other regulatory updates can we expect?
01:33So, on the super, on following through on supervision, Vice Chair for Supervision Bowman actually brings an unusual background to this work, and that is that she's a former supervisor.
01:43So, she speaks that language and relates to their work, and I think if anyone can have an effective relationship with them and work with them successfully, it would be Vice Chair for Supervision Bowman.
01:58So, I'm confident about that.
01:59As we think about the things that are going on in the pipeline, so I would just point to a few things.
02:08Basel III endgame, we're going to look at the rating system.
02:13We're going to be actually voting to put out for comment something on supplemental leverage ratio this afternoon.
02:20We're looking at our merger policy, stress test is a big thing, and there are a number of things that we're looking at that we've announced and we'll be moving to in time.
02:32Thank you, sir.
02:32So, the payment of interest on reserves has become a central pillar of the Fed's post-crisis monetary policy framework.
02:43Since the transition away from the pre-2008 scarcity model, where reserves were tightly managed to influence the federal funds rate, the Fed has relied on an ample reserves regime using administered rates like interest on reserves to maintain control over the short-term rates.
03:04As of February 2025, nearly 19% of the $18 trillion in bank assets were effectively loans to the Federal Reserve earning interest.
03:15Given this structural shift, how feasible would it be for the Fed to return to a scarcity-based framework where reserves earn little or no interest?
03:25And if interest on reserves were eliminated, what would be the impact that that would have on the Fed's ability to unwind its balance sheet and manage policy rates?
03:36So, we're in an ample reserve framework now, and that's a good thing.
03:41That's a result of the global financial crisis and the desire to have lots and lots of liquidity and large liquidity requirements for our largest banks in particular.
03:50So, that's a good thing, and that enables banks to keep lending through stress and that kind of thing.
03:55If you were to want to go back to a scarce reserves, it would be a long and bumpy and volatile road.
04:03I wouldn't recommend that we undertake that road.
04:06It would not save any money.
04:07There's an illusion that it would save money.
04:09That is not the case.
04:10And it would also not make credit more available.
04:13In effect, I would say having a lot of liquidity in the system, which is what goes with ample reserves, makes sure that banks will be able to continue to lend.
04:21So, we think it works, and I think unwinding it is a policy choice, which could be executed, but it would take years to execute, and it would be challenging and quite volatile.
04:34I've just got about 35 seconds left or so, but I did want to touch on one item.
04:39The chairman mentioned it, and I think it's important.
04:41I know that you didn't mention it in your opening statement, but would you talk a little bit about just exactly what's going on with your building?
04:48When you have that type of an overrun on the prices and you're talking about billions of dollars in costs, I think it's appropriate for you to be able to explain to the committee exactly what's going on.
04:56Would you take a few minutes, please, and explain what's going on with the value of that building and why the costs seem to be so exorbitant?
05:02I'd be glad to if I can have that time.
05:05So, please, thank you for the letter we received late yesterday.
05:09We will provide a much more detailed response, but just generally, I would just say we do take seriously our responsibility as stewards of the public's money.
05:20And the other thing I would start with is no one in office wants to do a major renovation of a historic building during their term in office.
05:28You'd much prefer to leave that to your successors, and this is a great example why, let alone two historic buildings that needed a lot of work.
05:36But we decided to take it on because, honestly, when I was the administrative governor before I came chair, I came to understand how badly the Eccles building really needed a serious renovation.
05:47It never had one.
05:48It was not really safe, and it was not waterproof and that kind of thing.
05:51So, we took it on.
05:52Now, I would start by – I would also say that the media reports that you accurately quoted, they're misleading and inaccurate in many, many respects.
06:02And I would just point to – there's no VPI dining room.
06:05There's no new marble.
06:06We took down the old marble.
06:07We're putting it back up.
06:09We'll have to use new marble where some of the old marble broke, but there's no new – there are no special elevators.
06:15There's just – there are old elevators that have been there.
06:17There are no new water features.
06:19There's no beehives, and there's no – and there's no roof terrace gardens.
06:24Other than that, you know, so all of the sort of inflammatory things that the media carried are either not in the current plan or just inaccurate.
06:33So – but notwithstanding that, the cost overruns are what they are.
06:37So, let me just say on that –
06:38Well, let's – we're well over the five-minute mark.
06:43I'm happy to give you time to talk about that.
06:45I'm happy that there are no beehives in there, but we're going to figure out what they are anyways.
