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WASHINGTON — Republican lawmakers are increasingly going after a target that's long triggered compliance headaches for Wall Street: the Federal Reserve's annual assessments of whether banks can survive financial meltdowns.
Sen. Pat Toomey urged Fed Chair Janet Yellen Thursday to abolish the stress tests, arguing they're hampering lending, burdening banks with unnecessary costs and hurting economic growth. House Financial Services Committee Chairman Jeb Hensarling also wants the tests dialed back, and is considering proposing legislation that would subject banks to exams every other year, rather than annually.
“Some institutions are spending hundreds of millions of dollars for annual compliance,” Toomey, a Pennsylvania Republican, wrote in a letter to Yellen. “The Federal Reserve should terminate” its exams, he added.
The Fed has received Toomey's letter and plans to respond, a spokesman said.
Toomey also said Yellen should consider halting all rulemaking. He wants her to hold off until the Treasury Department completes a review of financial regulations requested last week by President Donald Trump and until the new administration can fill vacancies at the Fed.
Large banks have been pushing for changes to stress tests since they were put in place in the wake of the financial crisis. The consequences for failing are severe, with lenders facing restrictions on paying dividends, limits on buying back shares and damages to their reputations.
The exams — featuring an ever-changing set of hypothetical economic disasters invented by the Fed — generally represent the highest bar Wall Street banks must clear when determining how much capital they need. While the tests initially helped restore confidence in banks after the 2008 meltdown, investors in recent years have blamed them for impacting how much capital can be returned to shareholders.
Toomey, a former derivatives trader, sits on both the Senate Banking Committee and Senate Finance Committee, which oversee banks and tax policy, respectively.
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