WASHINGTON, D.C. -

The opening statements Federal Reserve chair Janet Yellen gave to the U.S. House Financial Services Committee certainly appeared to give the sense policymakers recognize the significant difference in banks that might offer auto financing, especially ones with a nationwide footprint versus the single-point institutions in towns with one traffic light.

Yellen made her semiannual appearance in front of the House gathering on Wednesday to update lawmakers about the regulation and supervision the Fed is undertaking. Her first anecdotes reflected back on the Great Recession while acknowledging the capacity to handle regulatory requirements can vary greatly.  

“One of the Federal Reserve's fundamental goals is to make sure that our regulatory and supervisory program is tailored to the risk that different financial institutions pose to the system as a whole. As we saw in 2007-08, the failure of systemically important financial institutions can destabilize the financial system and undermine the real economy,” Yellen said.

“The largest, most complicated firms must therefore be subject to prudential standards that are more stringent than the standards that apply to other firms. Small and medium-sized banking organizations — whose failure would generally pose much less risk to the system — should be subject to standards that are materially less stringent,” she continued.

Yellen insisted the Federal Reserve has made substantial progress in building a regulatory and supervisory program that is consistent with these principles.

“We have implemented key standards designed to limit the financial stability risks posed by the largest, most complex banking firms. We continue to work on some remaining standards and to assess the adequacy of this package of measures,” she said in comments available here.

“With respect to small and medium-sized banks, we must build on the steps we have already taken to ensure that they do not face undue regulatory burdens,” she added. “Looking forward, we must continue to monitor for the emergence of new risks, since another key lesson from the crisis is that financial stability threats change over time.”

Yellen continued by touching on two broad topics involving the largest banks — resiliency and resolvability — when mentioning regulatory actions such as stress tests. When returning to those smaller institutions, Yellen acknowledged that Congress may consider carving out community banks from two sets of Dodd-Frank Act requirements.

“In conclusion, our post-crisis approach to regulation and supervision is both forward-looking and tailored to the level of risk that firms pose to financial stability and the broader economy,” Yellen said. “Standards for the largest, most complex banking organizations are now significantly more stringent than standards for small and medium-sized banks, which is appropriate given the impact that the failure or distress of those firms could have on the economy.

“As I have discussed, we anticipate taking additional actions in the near term to further tailor our regulatory and supervisory framework,” she continued.

“Yet even as we finalize the major elements of post-crisis reform, our work is not complete,” Yellen went on to say. “We must carefully monitor the impact of the regulatory changes we have made and remain vigilant regarding the potential emergence of new risks to financial stability. We must stand ready to adjust our regulatory approach where changes are warranted.

“The work we do to ensure the financial system remains strong and stable is designed to protect and support the real economy that sustains the businesses and jobs on which American households rely,” she added.