Washington, D.C. — Today, the Federal Reserve Board finalized its “stress capital buffer” rule. The final rule would restructure and severely weaken elements of the capital framework for large banks. In response, Gregg Gelzinis, senior policy analyst for Economic Policy at the Center for American Progress, released the following statement:
The Fed has all but eliminated the stress from its post-crisis, stress-testing regime for big banks and eviscerated capital requirements as a result. These changes prioritize shareholder and executive payouts over the stability of the banking system. Loosening critical financial regulations is also the last thing the Fed should be doing as the financial system enters a period of uncertainty due to the COVID-19 outbreak.
By watering down key assumptions and removing leverage requirements from the stress tests altogether, large banks will be able to reduce their loss-absorbing capital cushions significantly. These new changes also amplify the dangers associated with the Fed’s previous decision to release more information on its own internal stress-testing models, which allows banks to game the tests and tailor their balance sheets to further minimize their required capital.
It is regulatory malpractice to relax these requirements when a strong body of evidence suggests that the current safeguards are still too weak. Workers and households will bear the steep economic costs if this deregulatory agenda leads to another financial crash.
For more information on this topic or to speak with an expert, contact Julia Cusick at [email protected] or 202-495-3682.