Rep. Zeldin’s Bipartisan Stress Test Improvement Act, to Safeguard Capital and Protect Consumers, Passes House
Long Island, NY - April 12, 2018 - Congressman Lee Zeldin (R, NY-1), member of the House Financial Services Committee, issued the following statement after his bipartisan legislation, the Stress Test Improvement Act (H.R. 4293), passed the House of Representatives this afternoon by a vote of 245 to 174:
“Far too many aspects of our nation’s financial institutions are shrouded in secrecy and free from public accountability and oversight, hurting the hard working men and women who rely on them to buy their first home, start a small business and plan their retirement. Stress tests are a financial analysis performed internally by financial institutions or externally by a regulator to ensure financial institutions can withstand stressful economic conditions, in an effort to protect the everyday customers they serve.
“However, the Federal Reserve is not required to inform financial institutions of the criteria on which they will be analyzed, creating regulatory uncertainty for these organizations and increased compliance costs that stymy their ability to improve fiscal soundness. Ensuring these tests are done right, with fairness and objectivity, is essential for protecting depositors and the overall financial system. This bipartisan legislation I introduced, co-sponsored by Democratic Congressman David Scott of Georgia, bridges the gap between the Federal Reserve and financial institutions, lifting the shroud of secrecy, conducting stress tests based on real world information and safeguarding affordable and reliable access to capital for the American people.”
House Majority Leader Kevin McCarthy said, “Dodd-Frank is based on the assumption that uniform Washington rules can be imposed on a diverse nation. This failed idea has harmed a countless number of community banks, which in turn hits all the families and small businesses who depend on them for financing. Today, with the leadership of Representative Lee Zeldin, the House is continuing to fight to provide certainty for financial institutions and the people who rely on them. Sound financial institutions are a cornerstone to growing communities, and this bill will ensure that regulation is based on actual risks and tailored to ensuring the safety of consumers. I thank Lee for his hard work on this bill.”
Congressman David Scott (D, GA-13) said, “I want to thank Mr. Zeldin for working with me to amend and help pass this important bill. I think every Financial Services Committee member wants to have an honest debate about how we can improve CCAR and this bill starts that conversation. We must always look at our rules and regulations and make sure they are working as intended. And this bill with my amendment included, is a first step in making small tweaks to streamline the work our regulators are doing, so that we are still adequately protected from the next financial crisis.”
The Stress Test Improvement Act of 2017 improves the stress test process, by allowing bank holding companies to conduct the stress tests on an annual rather than semiannual basis. This bill also reduces the number of required supervisory scenarios - the type of stress tests mandated by federal regulators - from three to two, to include the baseline and severely adverse scenarios. Under this legislation, the Federal Reserve is also prohibited from objecting to a bank holding company’s capital plan solely on the basis of qualitative deficiencies.
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.