Federal Reserve Governor Daniel Tarullo, the central bank's point man for banking regulation, called Tuesday for keeping "strong" capital rules in place but acknowledged the so-called Volcker rule may be too complex.
The remarks from Tarullo, 64, who is due to step down on Wednesday after eight years, come as the Trump administration prepares a major overhaul of financial regulation, including the 2010 Dodd-Frank financial reforms adopted after the financial crisis in 2008.
Tarullo's departure also creates a third vacancy at the central bank to be filled by Trump, who has sharply criticized the Fed and begun slashing regulations generally.
"As proposals for regulatory change swirl about, it is crucial that the strong capital regime be maintained, especially as it applies to the most systemically important banks," Tarullo said in prepared remarks released Tuesday for an address at Princeton University.
According to Tarullo, Dodd-Frank "enhanced" capital requirements put in place after the crisis, when Washington sought to ensure that major financial institutions were on more solid footing.
"Neither regulators nor legislators should agree to changes that would effectively weaken that regime, whether directly or indirectly. It would be tragic if the lessons of the financial crisis were forgotten so quickly," he said.
On the other hand, Tarullo acknowledged that there was room for modifying Dodd-Frank without risking destabilizing the financial system. The law may unnecessarily impose a stricter set regulations on smaller banks, he said, by declaring those with $50 billion or more in assets to be "systemically important."
The so-called Volcker rule -- a proposal named for former Fed Chair Paul Volcker to prevent banks from engaging risky trading with their own funds -- could be simplified to reduce the resources banks need to comply.
"The Volcker rule applies to a much broader group of banks than is necessary to achieve its purpose," Tarullo said.
But Tarullo dismissed the idea -- promoted by Trump -- that burdensome regulations were preventing banks from lending, citing growing credit and record bank profits in 2016.
"It would seem a substantial overreach to claim that the new regulatory system is broadly hamstringing either the banking industry or the economy," Tarullo said.