STATEMENT: Fed Proposals Leave the U.S. Financial System More Fragile and Taxpayers Exposed to Risk of Another Crash, Says CAP’s Gregg Gelzinis
Washington, D.C. — Today, the Federal Reserve Board of Governors issued two proposals that would change living wills requirements for banks and would modify the application of certain rules to foreign banks. In response, Gregg Gelzinis, policy analyst for Economic Policy at the Center for American Progress, released the following statement:
Today, the Fed added to its long list of deregulatory actions over the past two years—leaving the U.S. financial system more fragile and taxpayers increasingly exposed to the risk of another crash.
The financial crisis demonstrated the destructive nature of big-bank failures, and one of the proposals reduces regulators’ capacity to manage such failures safely. The proposed changes would increase the time between full “living wills” submissions, which force banks to plan for their orderly failure, for even the largest Wall Street banks—and would eliminate the requirement altogether for some big banks.
The other proposal would reduce the frequency of stress testing for certain massive foreign banks such as Santander and BNP Paribas and would let them opt out of an important capital requirement. Moreover, a broad universe of foreign banks—including Deutsche Bank—would be required to submit full living wills only once every six years. The proposal also keeps in place a major loophole in the application of strong safeguards to foreign banks by allowing certain subsidiaries, known as branches and agencies, to escape heightened rules.
As Fed Governor Lael Brainard has pointed out, these proposals will “weaken the important safeguards put in place to address vulnerabilities that proved extremely damaging in the crisis.” There is no good reason to do so.
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