Federal Reserve Governor Milan has called for priority reform of banking regulation, saying cumbersome rules are a drag on the industry

Stephen Milan, a Federal Reserve governor, said he wanted the central bank to recalibrate a series of regulations on Wall Street before discussing other economic issues related to central banks' balance sheets. "Over the years, financial regulation has largely moved in one direction, with increasing restrictions on the banking sector," Milan said in remarks prepared for the Bank Policy Institute on Wednesday. He added that the interplay between regulation and financial marekting, the economy and the implementation of monetary policy was often underestimated. "While there have been many discussions around bank reserve balances and their interest, balance sheet composition and intermediation in the Treasury market, I think most of these discussions are downstream issues in the regulatory framework for banks," he said. Milan stressed that regulators should avoid overreacting, saying rules introduced after the 2008 crisis went too far. He points out that this has led many traditional banking operations out of the regulatory realm, in part because of "burdensome rules". "While I have no bias against non-bank financial companies, credit allocation should be driven by market forces, not regulatory arbitrage," he says.