Fed Governor Daniel Tarullo’s farewell speech at Princeton University was more bullish for the biggest banks than expected, analysts said Wednesday.
“We see his comments as supportive of our view that regional and community banks will get regulatory relief in the coming years. It opens the door for help for the biggest banks, though that may come at the cost of higher capital requirements,” said Jaret Seiberg, a Cowen and Company analyst, in a note to clients.
While he called for some easing to bank rules, Tarullo warned against reducing capital requirements for the biggest banks and even raised the possibility of higher requirements, Seiberg noted.
Big bank stocks
were up slightly Wednesday in the wake of Tarullo’s remarks.
Tarullo, who spearheaded Fed bank regulation for eight years and developed a reputation for bluntness in his dealings with bankers, had a “softer-than-usual tone,” agreed Ian Katz, an analyst at Capital Alpha Partners.
In his swan song, Tarullo made a case for ending the qualitative part of the annual stress test, a move that would provide “major headache relief” for the biggest banks, Katz said.
Ending the qualitative part of the stress tests would eliminate the fear that banks have of being publicly embarrassed for failing the test. Under Tarullo’s proposal, stress tests would be folded into normal annual bank examinations.
In another olive branch to big banks, Tarullo also said the Volcker rule was too clunky. Regulators are also having trouble differentiating between when a bank is engaged in proprietary trading or making markets, he said.
Read: Fed’s Tarullo says Volcker rule may be hurting trading
On Tuesday, Brian Moynihan, CEO of Bank of America
, complained in an interview at the Washington Post that his bank had just filed 500 pages with regulators about complying with the Volcker rule
Politically, the speech could give Democrats cover to support some changes to bank regulation, said Brian Gardner, an analysts at Keefe, Bruyette & Woods.
“However that would require that the two political parties work together and they have not shown an ability to do that for some time,” Gardner said.
Seiberg said much depends on who President Donald Trump nominates to be the vice chairman of supervision at the Fed.