Yellen defends banking overhaul passed after 2008 crisis

Federal Reserve Chair Janet Yellen on Friday defended the web of regulations the Fed helped enact after the 2008 financial crisis, saying it helped restore the banking system's health and disputing criticism that the rules have hurt lending.

Yellen said the Fed is prepared to adjust the regulations as needed to help financial institutions. But in a speech to an annual conference of central bankers in Jackson Hole, Wyo.,she implicitly rejected efforts by Republicans, including President Donald Trump, to scrap the 2010 Dodd-Frank law as a threat to the economy.

• A puzzle for central bankers: Solid growth but low inflation

The Fed chair refrained from remarking on the state of the economy or the possible future course of interest rates. Investors had been awaiting Yellen's speech for any signals about what the Fed might do when it meets next month. The central bank has been gradually raising its benchmark short-term interest rate, but most Fed watchers expect no rate hike before December at the earliest.

Term ending

Overhanging Yellen's speech Friday was the possibility that it will mark her final appearance in Jackson Hole as Fed chair. Her term as chair will end in February, and Trump has made clear he is considering replacing her. One candidate he has mentioned is Gary Cohn, a former Goldman Sachs senior executive who leads Trump's National Economic Council.

Still, Trump hasn't ruled out asking Yellen to remain, and tensions might be arising between Cohn and Trump. In an interview published Friday in the Financial Times, Cohn said he considered quitting the White House over the president's widely condemned response to violence at a white nationalist rally in Charlottesville, Virginia. Cohn said he ultimately chose not to leave because of the duty he feels to his job.

In her speech Friday, Yellen noted that the U.S. and global financial systems were "in a dangerous place 10 years ago," with severe strains that led to the collapse of investment bank Lehman Brothers, the government takeover of mortgage giants Fannie Mae and Freddie Mac and the requirement that taxpayers bail out the largest banks.

The Fed chair pointed out that despite all the government support to banks, the downturn devolved into the Great Recession, with the loss of 9 million U.S. jobs and millions of Americans losing homes to foreclosures. She said that the resulting recovery has been painfully slow and that policymakers have had to search for ways to prevent another financial crisis.

• Fed keeps key interest rate unchanged amid low inflation
• Another financial crisis 'in our lifetimes' unlikely, Yellen says

Yellen said that the Dodd-Frank Act has produced a far safer banking system, especially with banks required to hold much higher levels of capital, the cushion against losses from bad loans.

"The United States, through co-ordinated regulatory action and legislation, moved very rapidly to begin to reform our financial system," Yellen said, "and the speed with which our banking system returned to health provides evidence of the effectiveness of that strategy."

In addition to higher capital requirements, Yellen said the financial system has been fortified by regulations requiring that the biggest banks undergo annual stress tests to ensure that they have enough capital to withstand any future severe downturn.

The Fed chair said the central bank is open to modifying current regulations, especially to ease regulations on smaller banks that didn't contribute to the 2008 crisis.

Yellen said that in all, the tighter regulations, far from hurting economic growth, had actually helped the economy in part by making the financial system safer.