randal k quarles : supervision and regulation report testimony by mr randal k quarles, vice chairman for supervision of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington, dc, 10 november 2020. * * * chairman crapo, ranking member brown, members of the committee, thank you for the opportunity to testify today on the federal reserve ’ s supervisory activities in the context of the ongoing pandemic. my last appearance, in may, followed a period of historic financial stress. 1 the emergence of covid - 19, and the measures taken in response ( together, the “ covid event ” ), added a deep strain of uncertainty to financial markets. it prompted a sharp and global flight from riskier, more volatile asset classes, and a retreat to the safety of cash. that retreat demanded immediate, extraordinary, and concerted public intervention, to ensure stability, restore calm, and see the nation through an unfolding crisis. for the federal reserve, that intervention spanned a wide range of financial intermediaries and markets, including the banking sector. 2 strengthened by a decade of improvements in capital, liquidity, and risk management, including the refinement and recalibration of the last three years, banking organizations became an important shelter from financial distress. our goal was to ensure this shelter stood fast — that banks could respond to the emergency, and address consumer, business, and community needs, without jeopardizing their own safety and soundness. t he report accompanying my testimony lists these actions in detail, and we have extended several of them as the covid event has continued. 3 they range from temporary adjustments to capital and reserve measures, to temporary changes in compliance requirements, to temporary shifts toward off - site examination activities, to temporary delays in the implementation of new standards. they include specific guidance on the use of capital and liquidity buffers. they clarify, beyond doubt, that safety and soundness are no impediment to working constructively with customers, including borrowers, in a time of strain. together with monetary, financial stability, and fiscal actions, these measures helped calm the waters. the initial wave of market stress has passed, and the recovery has begun much sooner than expected. this speaks to the country ’ s tenacity, ingenuity, and spirit in responding to even the greatest of shocks. the challenge we face now is distinct,

formidable, and complex. the surprise of the covid event is gone, replaced by a clearer view of its economic consequences. the burdens facing households and businesses are better understood, but they are no less significant, and they are not evenly borne. i am confident that we will work through them together, support those hardest hit, and ensure that our economic wounds do not become scars. the federal reserve remains committed to using our full range of tools to support the economy for as long as needed, and a strong, resilient banking system is an essential element of such support. a durable recovery demands banks that lend actively, confront gains and losses honestly, withstand unexpected shocks, and help customers rebuild and adapt to the new landscape. our task, as supervisors, is to ensure the country ’ s banks continue to meet that exacting standard. the federal reserve ’ s earliest covid - related guidance, encouraging banks to work constructively with borrowers, was an important step toward this goal. since then, working with 1 / 4 bis central bankers'speeches our colleagues in other financial regulatory agencies, we have taken several others : we published a set of key principles to guide covid - related credit accommodations, in ways that meet customer needs while preserving safety and soundness. 4 we offered new guidance on bank examinations during the covid event, ensuring they consider the unique, evolving, and potentially long - term issues that institutions face. 5 we clarified our approach to covid - event - related activity under the community reinvestment act ( cra ), and to granting consideration for investments that protect public health and safety. 6 and building on targeted, temporary changes to capital requirements this spring, such as temporarily removing reserves and treasuries from the denominator of the supplementary leverage ratio, we supported banks ’ ability to address customer needs by easing their path to participate in emergency programs — to issue loans in the paycheck protection program, underwrite loans in the main street lending program, and act as counterparties in several other facilities. 7 we also used the flexibility in our stress - testing apparatus to better understand the effects of the covid - event shock. 8 this framework, like the data associated with it, has long been a key part of day - to - day banking supervision. however, it was born in and built for a crisis, to cut through panic, clarify the health of the largest financial firms, and provide the certainty needed to restore confidence. 9 in that spirit,