Stress Test Improvement Act of 2017
Floor Speech
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Mr. Speaker, I rise to oppose H.R. 4293, the Stress Test Improvement Act, which is designed to line Wall Street's pockets by weakening a critical tool to prevent a future financial crisis.
Bank stress tests are a forward-looking tool where a hypothetical scenario or two are tested, such as, how would a megabank fare if a major recession occurred next year with unemployment and foreclosures going way up? These tests, incredibly, are very helpful to see if banks might need to maintain more capital to help buffer against such a scenario.
These are similar to crash tests for cars where a manufacturer runs their cars through crash test simulations to see if passengers will remain safe in various kinds of crashes. Such testing provides valuable insights regarding what design adjustments might be needed to ensure the car is as safe as possible.
So let us take a look at how this safeguard developed. When President Obama took office, his administration inherited an economy in free fall with about 800,000 jobs lost that very month. Many wondered how many more financial firms might fail. So Treasury Secretary Geithner worked with the Federal Reserve, and together they designed the Supervisory Capital Assessment Program.
These stress tests checked how resilient the largest banks were if, in fact, the economy continued to deteriorate. Results were published, and we learned that 10 of the 19 participating firms were collectively about $75 billion short of the required capital ratios. These tests provided criminal transparency to the market, thereby enabling the banks to begin recapitalizing themselves with new funds from investors who themselves had renewed confidence in the banking industry.
Following this success, Congress decided to mandate these stress tests to be regularly required of the Nation's largest banks in Dodd- Frank. This would ensure banks and their regulators remained vigilant, especially when times were good, so that they could spot problems much earlier and take corrective action.
The Federal Reserve implemented these Dodd-Frank stress tests alongside their Comprehensive Capital Analysis and Review, known as CCAR, which added a capital planning component to the tests.
According to credit rating agencies and financial analysts, these stress tests, along with Dodd-Frank's other enhanced prudential requirements of the largest banks, have made our financial system much safer.
Now, let me give you some numbers. Since 2009, the 34 largest banks have increased their capital by $750 billion, bringing the industry's total capital buffer to nearly $2 trillion today. That is $750 billion in more high-quality funding that banks can safely lend and invest, which helps explain why business lending has also increased almost 80 percent the last 8 years.
But H.R. 4293, this bill, would undermine all of that and proposes three changes that megabanks like Wells Fargo would love to see. First, the bill would eliminate the adverse scenario from Fed-run stress tests. But like in car crash tests today, multiple scenarios can help ensure an institution can survive a wider range of unforeseen events.
Second, the bill would bar the Fed from making qualitative objections to a bank's capital plan. Even the Federal Reserve led by President Trump's appointees issued a lengthy proposal yesterday altering some of the stress testing rules, and their proposal maintains their ability to make qualitative objections. So there is no basis for Congress to unilaterally make it harder for regulators to ensure megabanks are well run and capitalized.
Third, the bill would allow Wall Street megabanks to conduct fewer company-run stress tests--annually instead of semiannually. But given how quickly tides can shift, routine, semiannual testing can better identify problems before they grow into larger problems.
As a former Federal Reserve official wrote last year: ``Had stress tests as conducted now been in place before the crisis, they could have made firms more resilient to unexpected losses, and at a minimum could have given supervisors the ability to question banks' continued dividend and share buybacks in the quarters leading to the height of the crisis.''
Accordingly, I strongly urge Members to reject this rollback for Wall Street megabanks.
Let me just add by saying: Why would we do this? Why would we, knowing what we went through in 2008 where we had this subprime meltdown, we went into a recession--almost a depression--and we discovered that the banks were undercapitalized and they could not deal with this kind of change in the economy, they could not deal with the fact that something had gone wrong and be prepared to deal with it rather than us having to bail them out in the way that we did? I don't know why we would do this now. So I would simply ask Members to ask the question: Why is it we would take away something that would make the banks safer, that would make them more stable, and that would make them able to be able to sustain despite the fact there was a crisis developing in the economy?
Why would we want to take away this safety that we have built with stress testing?
So, with that, Mr. Speaker, I would ask the Members to reject this rollback for Wall Street megabanks, and I reserve the balance of my time.
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Mr. Speaker, again, I raise the question of why are we considering a bill that would reduce the amount of scrutiny that we have with this stress testing from the biggest banks in America, when, in fact, we know that this stress testing was created because of the problems that we were faced with in 2008?
We learned an awful lot about what we should not do and what we should change in order never to be in the position again where we have to bail out all of these big banks.
We are simply saying: Banks, you have to be tested. You have to have a stress test to see if you can withstand the difficulty that will be presented if, in fact, the economy gets in trouble. It is as simple as that.
Do you have enough capital? Are you organized in such a way that you won't go under, that you won't create a problem in our economy because of the size of your bank if you get in trouble?
So I would simply ask our Members to reject this bill because this bill is not needed. It is simply a way by which to comply with the megabanks' request to not have to do the work that is necessary to prove that they are safe. And I don't know why we would do that.
Mr. Speaker, I reserve the balance of my time.
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Mr. Speaker, I would like to share with Members a Communications Workers of America letter to us on H.R. 4293.
And they state: H.R. 4293 would undermine the effectiveness of the Federal Reserve's Comprehensive Capital Analysis and Review--that is, CCAR--stress test. Specifically, the bill would prohibit the Federal Reserve from objecting to a capital plan on the basis of qualitative reasons; such as, the reasonableness of the assumptions and analysis underlying the plan. The bill would also cut the frequency of CCAR tests in half, taking away tools and reducing the amount of information available to the Federal Reserve about bank health and is a fundamentally bad idea.
Really, it is basically what we have been saying. We have been saying that this would reduce the stress tests from semiannually to an annual test.
Why would you want to have less scrutiny of these banks? Why would you want to reduce the amount of time that they would have relative to being able to prove that they are safe?
Also, I think it is very important what is being said here about the Fed and the Fed's ability to basically review, on the basis of qualitative reasons, such as reasonableness and of assumptions and analyses underlying the plan.
So they are looking to see if these banks are well capitalized, if these banks can withstand, again, problems in our economy that would arise that could create unemployment and all kinds of other adverse conditions.
So I would ask the Members to oppose this bill. This is just another deregulation bill for the biggest banks in America. We should not be doing that because these are the banks that, if they are undercapitalized, if they don't have what is needed to withstand problems in our society that could arise in the economy, it could cause us to go into another recession, even a depression perhaps.
Mr. Speaker, I reserve the balance of my time.
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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.
Mr. Speaker, I reserve the balance of my time.
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Mr. Speaker, I would like to share with Members the opinions of former Chair Janet Yellen, who has stated that stress testing improves public understanding of risk at large banking firms, provides a forward-looking examination of firms' potential losses, and has contributed to significant improvement in risk management.
Former Chair Ben Bernanke has praised stress testing for playing a crucial role in the recovery of the economy and creating a more resilient postcrisis U.S. banking system.
The deceptively named Stress Test Improvement Act--that is, this bill--severely weakens this key element of bank oversight and must be rejected. We cannot ignore the analyses that are being given by these former Fed Chairs. I mean, they are saying do not be tricked, do not be fooled, that this is a deceptive bill, and that stress testing must continue in order to ensure the stability of our banks in the event the economy goes awry.
Mr. Speaker, I reserve the balance of my time.
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Mr. Speaker, my colleagues on the other side of the aisle continue to focus on pushing through giveaways to Wall Street and megabanks like Wells Fargo that could be harmful to consumers, investors, and our Nation's economy. Week after week, Republicans advance legislation that is basically reckless and misguided. H.R. 4293 is yet another bad bill from the Republicans that weakens critical protections put in place by Democrats to prevent another financial crisis.
As we have discussed, the bill undermines the stress test framework for our Nation's largest banks. Stress tests are an important regulatory tool that have much improved the safety of our financial system.
Mr. Speaker, when we crafted Dodd-Frank, we mandated these stress tests and put in place other enhanced prudential guardrails for large banks to not only prevent damage to our economy, but also help grow our economy, and they are working. H.R. 4293 weakens the rigor and frequency of these stress tests, a move that simply makes no sense.
Rather than harmful measures such as this one, Congress should be working to strengthen consumer protections, reform our broken system of credit reporting, provide tailored, responsible relief for community banks, and ensure that recidivist megabanks are held accountable for breaking the law.
I urge a ``no'' vote on this bill, and I urge Members again to simply ask the question: Why, at this point in time, would we want to basically reduce the ability for us to know exactly what is going on in those banks, whether or not they are fully capitalized, whether or not they could withstand a serious problem in our economy? I don't think that the opposite side of the aisle, my friends, could really answer that question because this is simply a deregulatory bill for the biggest banks in America, for the megabanks, not needed, and certainly we need the information. We never want to go through a period of time like we did in 2008 where we discovered that our banks were not well capitalized and could not withstand the problems that we encountered.
I simply ask all Members to oppose this bill, and I yield back the balance of my time.
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Mr. Speaker, this is the final amendment to the bill, which will not kill the bill or send it back to committee. If adopted, the bill will immediately proceed to final passage, as amended.
Mr. Speaker, we have talked at length about how H.R. 4293 is a bill for Wall Street megabanks to line their pockets while reducing safeguards that better protect the Main Street economy from another financial crisis.
While I deeply disagree with the bill's approach, I offer this motion to recommit, not in a manner that sends the bill to the committee and kills the bill, but rather to attempt to improve the bill before the House votes on final passage of the measure.
We all know megabanks have been given a free ride in Washington for far too long when it comes to repeated, egregious offenses. They just get a fine--the equivalent of a slap on the wrist--for harming consumers.
Since 2010, megabanks have racked up over $160 billion worth of fines, yet they keep breaking the law.
We have talked about Wells Fargo's growing list of illegal actions that have harmed millions of consumers. Sure they have been fined, but these fines, even $1 billion in fines, are just the cost of doing business for a company that made over $22 billion in profit in 2017.
This soft enforcement approach is just increasing their operational risk and losses, which, at the end of the day, will impact not only all of their consumers, but the broader economy as well.
I hope Republicans and Democrats can all agree that any megabank that engages in a pattern or practice of unsafe or unsound banking practices and other egregious violations that has resulted in profound consumer harm in the last 10 years is not entitled to any benefit of regulatory relief provided under this bill, especially regulatory relief that would eliminate the type of oversight that makes sure our economy stays safe. So my amendment would exclude a megabank like Wells Fargo that has fraudulently opened millions of accounts without their customers' consent, enrolled consumers in life insurance policies without their consent, and forced nearly 1 million Americans to purchase auto insurance they didn't need.
Since 2016, I have been calling for Wells Fargo to face real penalties. I introduced H.R. 3937, the Megabank Accountability and Consequences Act, to compel the Federal bank regulators to fully utilize existing authorities to stop megabanks from repeatedly flouting the law and harming millions of consumers. So I was glad to see Janet Yellen, on her last day at the Fed, take bold action to cap the bank's size until it cleans up its act.
We must do more to send a strong message to all megabanks that there will be real consequences for their bad actions that mislead, abuse, or deceive its customers. H.R. 4293, in its current form, would send the opposite message to recidivist megabanks and undermine the hard work we have done since the 2007-2009 financial crisis.
Mr. Speaker, I urge my colleagues to adopt this motion to recommit so that we do not reward a recidivist megabank like Wells Fargo for repeated operational failures that ripped off millions of consumers, and I yield back the balance of my time.
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