Stress Test Improvement Act of 2017

Floor Speech

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Mr. BARR. Mr. Speaker, I thank the chairman for the recognition and the author of this legislation, Mr. Zeldin, for his leadership on the Stress Test Improvement Act, which I strongly support.

Mr. Speaker, the Federal Reserve administers two stress tests that they believe analyze the ability of U.S. firms to weather various forms of economic turbulence. While the Fed failed to sound the alarm prior to the last financial crisis, the thought is that, with these tests, one of which was instituted by the Dodd-Frank financial control law in the aftermath of the financial crisis, the Fed can prevent or at least mitigate the severity of the next crisis.

I believe that stress tests can be very productive and useful, but there is such a thing as overkill. When a relatively healthy patient goes to the doctor, the doctor typically doesn't say: And you need to go to another doctor, and you need to come see me again every month. That is really not required. It adds costs, it is redundant, it is duplicative, and it doesn't materially benefit the patient in terms of better health outcomes.

The analogy applies to banks. Stress testing is good, but overkill is costly, and it costs the financial system and doesn't materially add to financial stability. Certainly there is merit to stress testing, but there is no doubt that the cloud of secrecy surrounding these tests confounds the ability of financial firms to correctly identify systemic risks, to take corrective action, to chart a more sustainable or profitable path for the future. As a result, financial firms, many of them banks, are left trying to anticipate these Fed models, wasting valuable time and resources that could be used to actually address risks that threaten our economy.

So this environment of regulatory uncertainty actually, I would argue, undermines financial stability because it distracts from the mission of the institution, and it certainly is costly in terms of driving up costs and taking away access to capital for productive activities that actually strengthen the economy. For these reasons, I am a proud supporter of this bill, which is a great first step to clean up some of the regulatory uncertainties surrounding these tests.

The bill does a few things. First, it reduces the frequency of the required company-run stress tests to once per year. One is enough to identify risks, instead of two. Second, it eliminates one of the supervisory scenarios that must be run, leaving just two, again eliminating redundancy and superfluous, costly activities. Finally, it prohibits the Federal Reserve from objecting to a bank holding company's capital plan based on unknown qualitative reasons.

These institutions need to know what the Fed is looking for in order to satisfy the stress testing that is applied to them. Again, I applaud Congressman Zeldin and Chairman Hensarling for their hard work on this commonsense regulatory improvement bill. It is not deregulation. It is better regulation. It is more effective regulation to not only unleash greater capital under the economy but actually enhance financial stability.

For those reasons, Mr. Speaker, on behalf of the American economy and for financial stability, I urge my colleagues to vote for the Stress Test Improvement Act.

Ms. MAXINE WATERS of California.

Mr. Speaker, I don't know what this overkill argument is all about. This is about deregulation. The banks, these megabanks, don't need any more deregulation or help from Congress. In 2016, the industry made record-breaking profits, more than $170 billion in profits. The Republicans gave the eight largest Wall Street banks a $15 billion windfall from their tax scam bill. And CEOs are making more money on Wall Street, as much as they made in 2006, before they drove our economy into a massive ditch.

Megabanks need reasonable but strong stress tests to keep our economy safe. And I want to tell you, after Dodd-Frank reforms were put in place--and the stress test was one of the things that had to be done-- the banks resisted it, but finally they came into compliance. And it took them several years, and then they did it the way that Dodd-Frank would have them do it. So there are no problems.

These stress tests now are stress tests that reveal exactly what is going on in the bank. And so why are we trying to undo this? Why do you want to see them once a year instead of twice a year? Twice a year has proven that we can keep them straight, that we can make sure that they are well capitalized, that we can make sure they have a good financial plan.

So I would simply say, let's not get involved in more deregulation and take us back to where we were when we got in trouble in 2008. I would ask the Members to vote ``no'' on this bill.

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