Warren Comments on Fed's Proposed Rule to Weaken Megabank Stress Tests, Another Rollback of Wall Street Safeguards
Warren’s comment follows the Fed’s recent stress tests that lowered loss-absorbing capital requirements for the largest banks in the country, weakening financial protections and opening the doorfor big banks to boost stock buybacks and dividend payouts to shareholders
“The Fed does not have a statutory obligation to maximize Wall Street dividends, share buybacks, and executive bonuses. It does, however, have a statutory obligation to promote the safety and soundness of the banking system and the stability of the broader financial system.”
Washington, D.C. – Today, U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee submitted a comment on Federal Reserve Board’s proposed rule that would weaken the stress capital buffer (“SCB”) framework, allowing big banks to juice payouts to shareholders at the expense of financial stability. The proposed rule would further undermine an already fragile economy by increasing the likelihood of big bank failures.
“The proposed rule is yet another example of the Fed’s looking out for Wall Street executives and shareholders at the expense of the American public,” Ranking Member Warren wrote. “It would weaken the stringency of the Fed’s stress testing framework and reduce loss-absorbing capital levels at the largest banks in the country – making the banking system more fragile at a moment when President Trump’s chaos has the economy on the brink. It should be withdrawn, and the Fed should abandon its broader tear down of the stress testing regime.”
“The goal of the stress tests is to ensure firms have robust capital planning frameworks and enough capital to remain resilient to a range of possible outcomes, not just to any one year’s stress testing scenario. A real-world financial shock does not provide big banks with a heads-up and advanced certainty on losses – and nor should the stress tests. With more certainty, firms will be less cautious and more aggressive in increasing their dividends and buybacks, depleting their capital,” wrote the Ranking Member.
Ranking Member Warren concluded: “The public relies on a stable banking system to finance homes, cars, and businesses. This proposed rule, like many others promulgated by the Trump Administration, increases the likelihood of another financial crash and more Wall Street bailouts. The Fed should withdraw this proposed rule and end its assault on Wall Street safeguards.”
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