By Pete Schroeder

WASHINGTON, (Reuters) – The U.S. Federal Reserve relaxed a raft bank regulations and requirements that were introduced after the financial crisis of 2007-2009. They claimed they were too rigid and burdensome.

The Fed will likely to reexamine many of the changes made in the last four years with a new Democratic nominee for the position of Vice Chair for Supervision.

Below are the top criticisms of Democrats, advocacy organizations and Lael brainard (the Fed’s only Democratic Governor) for weakening safeguards in the financial sector.

CAPITAL AND LIQUIDITY TAILORING

The 2018 law was passed by Congress to direct regulators that they ease liquidity and capital requirements for all banks other than the country’s biggest banks. This follows lawmakers who argued the previous post-crisis guidelines were too restrictive for small banks and hurt the economy.

The Fed was the first to “tailor” the rules. Quarles used the discretionary powers granted by the law to provide relief to banks holding assets up to $700B.

Analysts believe Quarles’ successor will reconsider discretionary relief that could be reversed, without having to cross the lines of lawmakers.

BANK LIVING WILLS’

In 2018, the Fed was also required to decrease the number of “living wills” that big banks have to file detailing how they can be safe wound down during a crisis.

Quarles extended the requirements of Congress by allowing banks that have assets in excess of $700 billion to present a comprehensive plan only once every six-years, rather than as required previously.

REWRITE “VOLKER RULE”

The “Volcker Rule”, which prohibits banks from making speculative investment on their own accounts, was one of the most controversial regulatory initiatives to emerge from the financial crises a decade back.

Quarles was keen to streamline this complicated rule when he first joined the Fed. But it took Quarles, four regulators and two years to complete its rewriting.

Critics claim that these changes pose a risk to the financial sector, but analysts agree that reviewing them will take up significant resources.

STRESS TESTS

Quarles has made several changes to “stress tests” at big banks. These annual health checks are the largest constraint for lenders in determining capital requirements.

He attempted to make tests that banks have long criticised as being opaque and subjective more predictable.

He also eliminated the Fed’s ability to fail banks on quantitative rather than qualitative grounds.

Many analysts believe Quarles will be replacing Quarles. He could order lenders to keep enough cash aside to cover future dividend payments for eight quarters instead of just four.

SWAPS INTER-AFFILIATE

Quarles made many changes that were targeted at smaller banks and medium-sized institutions, but one of them was an immediate victory for Wall Street lenders.

According to industry estimates, the Fed and regulators have agreed that in 2020, the Fed will reduce the collateral banks organizations need to save to protect certain swap trades among their affiliates. This should result in a reduction of approximately $40 billion.

Critics warned that this change might encourage banks to acquire large, risky swap positions. They suggested the Fed review the matter.