By Katanga Johnson and Michelle Price

 

WASHINGTON (Reuters) - U.S. President Donald Trump's top banking regulator on Tuesday defended plans to ease lending rules and trading restrictions introduced following the 2007-2009 global financial crisis during his first appearance before Congress.

 

Federal Reserve Vice Chair for Supervision Randal Quarles plays a key role in Trump’s pledge to spur economic growth by cutting red tape, but his proposals were challenged by Democratic lawmakers worried about creating new risks and harming consumers.

 

"The Trump administration and my colleagues across the aisle are working to move our system of banking regulation in exactly the wrong direction," ranking member Democrat Maxine Waters said in opening remarks at the House Financial Services Committee on Tuesday.

 

Quarles defended his first six months in office, outlining his work to simplify the so-called Volcker Rule banning banks from making profit-seeking trades on their own accounts. He also suggested reforming the Community Reinvestment Act (CRA) that promotes lending to low-income communities.

 

These moves were met with a cool reception by Democrats on the committee who said it was not the regulator's place to make changes to the Volcker Rule brought into law by Congress.

"As a regulator, I cannot change the Volcker Rule--it is law of the land. But I can simplify it to reduce the burden of complying with it," Quarles, who argued the rule had not been implemented effectively, told lawmakers.

A former Wall Street lawyer, Quarles warned of the need to retain key post-crisis reforms that have made the financial system safer, while also arguing that some rules, such as the CRA, can be simplified without creating new risks.

Enacted in 1977, the CRA aims to promote financial inclusion by encouraging banks to extend credit to low-income communities where they take deposits.

The law was originally conceived to stamp-out “redlining,” a practice in which banks refuse to lend in certain poor neighborhoods, effectively discriminating against minority residents.

Democrats raised concerns that changes to the CRA, which banks claim is outdated and overly bureaucratic, could lead to discriminatory lending practices against low-income and ethnic minority communities.

"The objective of the changes we are considering will help, not harm, low- and moderate-income communities," Quarles responded, without elaborating on the details of the potential changes.

"I think that one of the main issues with CRA is that it has become formulaic over the years," Quarles said. "I'd like to take CRA off of autopilot mode."

Quarles will also provide testimony before the Senate Banking Committee on Thursday.

(Reporting by Katanga Johnson; Editing by Michelle Price, Meredith Mazzilli and Diane Craft)