Stress Test Improvement Act of 2017

Floor Speech

BREAK IN TRANSCRIPT

Mr. ZELDIN. Mr. Speaker, I thank the chairman for all of his great leadership and mentorship throughout this process to get this bill to the floor today.

Mr. Speaker, I rise in strong support of H.R. 4293, the Stress Test Improvement Act. It is critical bipartisan legislation that injects transparency, consistency, and fairness into the stress testing process.

I especially want to thank my bipartisan supporter and partner on this important bill, Congressman David Scott of Georgia.

Stress tests are one of the aspects of current law that are contributing to the climate of legal and regulatory uncertainty because the Federal Reserve has failed to provide the necessary transparency around this process.

A stress test is a financial analysis performed internally by a financial institution or done externally by a regulator to assess if a bank can withstand stressful economic conditions. Stress tests, when done correctly, are an important way for banks and regulators to understand the ability of financial institutions to survive a contracting economy or weather a major economic storm like a recession.

Ensuring that these tests are done right, with fairness and objectivity, is essential for protecting depositors and the overall financial system. That is why passing the reforms in this bill should be a priority on both sides of the aisle.

Working together on a bipartisan basis, Mr. Scott offered an amendment to this bill that was accepted unanimously by the members of the Financial Services Committee, including the ranking member, and this bill cleared a committee markup with a bipartisan vote of 38-21.

By focusing the bill on three core reforms, we are improving this important process to protect soundness in the banking system, while also reforming the negative unintended consequences and damaging overreach of Dodd-Frank.

By striking the adverse scenario requirement from stress testing, these important tests can actually focus on real-world conditions to protect financial institutions and the customers they serve from threats to the stability of the financial system.

By repealing the ability of the Federal Reserve to reject a company's capital plan based solely on a qualitative stress test, we are making the process more transparent and fair.

This legislation ends the ability of regulators to arbitrarily reject a financial institution's capital plan without feedback or constructive criticism. These secretive rejections by regulators have done little to protect consumers and inserted more, not less, uncertainty into the financial system.

By eliminating the midcycle review and shifting from biannual to annual stress testing requirements, we are lessening the compliance tax that has raised the cost of lending and hurt consumers who have lost access to the small business loans or mortgages that help finance their American Dream.

Without needed reform, rather than ensuring financial stability, the Federal Reserve's stress tests are likely missing real risks while constraining the competitive flow of financial services that is critical to increasing economic opportunity.

While a valuable resource, stress test results may be creating a false sense of security, while at the same time sowing the seeds of financial instability. In order to succeed, a stress test must build from an accurate forecast of the next macroeconomic storm, and even the best forecasts tend to be wrong.

The Stress Test Improvement Act will make stress testing more effective by making the rules more transparent and fair. We are not gutting standards but making them work for the real world. This bill is a bipartisan team effort to accomplish these goals.

Without transparency about what the stress testing rules are, there is no way to ensure the government plays by the rules. By subjecting financial institutions to a questionable regime that lacks accountability and transparency, regulators are failing to achieve the important goals that they are tasked with: ensuring safety and soundness.

With the critical reforms in this legislation, we are upholding sensible standards for financial institutions, while clarifying the requirements for and the frequency of stress tests.

To the hardworking men and women in my district and nationwide, it is common sense that banks ought to know the standards and tests their regulators are subjecting them to. By injecting some transparency and consistency into the stress testing regime, we are taking needed capital off the sidelines so it can be invested in the private economy to create jobs and wealth.

I want to thank Chairmen Hensarling and Luetkemeyer for their leadership on this important issue. I also want to thank my Democratic partner on this important bill, David Scott.

Mr. Speaker, I urge adoption of this bill.

BREAK IN TRANSCRIPT

Source