WASHINGTON — Today U.S. Sen. Mark R. Warner (D-VA), a member of the Senate Banking Committee, questioned Federal Reserve Board Chairman Jay Powell about the impact of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. This bipartisan bill would reduce regulatory burdens on community banks and credit unions and provide new protections to consumers. It is expected to come up for a vote in the Senate as soon as next week.
During Senator Warner’s questioning, Chairman Powell dispelled spurious claims that the bill would weaken the Fed’s oversight of regional banks with assets between $100 billion - $250 billion. This had previously been a core argument advanced by special interest opponents of the bipartisan bill. Following the hearing, Senator Warner released the following statement:
“Chairman Powell’s testimony confirms what I’ve been saying all along: our bipartisan bill provides relief for main street consumers and small community banks and credit unions, while maintaining Dodd-Frank’s strong oversight of Wall Street and larger financial institutions,” Senator Warner said. “As the Chairman testified today, under our bill, the Federal Reserve will continue to administer strong and frequent periodic stress testing of regional banks with assets between $100 and $250 billion and will implement a framework that applies tailored, enhanced prudential standards to those same banks. Anyone who says otherwise does not have their facts straight.”
A transcript of Senator Warner’s questioning of Fed Chairman Powell follows:
Senator Warner: I want to ask you two very important questions. Let me preface this by saying that, in my first year here, one of the most important pieces of legislation I have ever worked on was the Dodd-Frank legislation. I think Dodd-Frank, for all its challenges, has made our system remarkably stronger. But we are eight years later, and there is a broad bipartisan group of us, and we are going to debate next week legislation that would make some modifications. In this legislation, S. 2155, we have not changed the requirements of that the Fed perform annual tests on banks above $250 billion in assets. I think that’s terribly important to maintain. We do give, after an appropriate period of time, the Fed the ability to do a rulemaking, the ability to look at those banks between $100 and $250 billion in assets to continue to undergo stress tests on a periodic basis. In my view is that stress testing is the most important prudential standard, and that frequent stress tests are some of the best tools we have to prevent another financial crisis.
Can you give us your views on stress testing including how rigorous they should remain and how frequently should remain on banks between $100 and $250 billion dollars in assets?
Chairman Powell: We do believe that supervisory stress testing is the most successful regulatory innovation of the post-crisis era. We are strong believers in this tool, including for institutions of $100 - $250 billion. It would be our intent, if this bill is enacted, that these institutions would continue to have meaningful, strong, regular periodic stress tests – frequent stress tests. We see it as a very important tool for these institutions.
Senator Warner: I hope folks listening to this understand we are not touching anything on the largest institutions above $250 billion, on annual stress tests. And as the Chairman of the Fed has indicated, even amongst those banks between $100 and $250 billion, we are still going to have frequent periodic stress tests that are still going to be strong. And the legislation lays out, into some detail, some of the requirements that we would have in those stress tests.
My last question is this: In terms of overall enhanced prudential standards, we do move in this legislation from $50 billion to $100 billion. We give you in the group of institutions between $100 and $250 billion about an 18-month period to tailor those potentially standards more appropriately. As you indicated, we are ready have an institution below $250 billion that qualifies as a Systemically Important Financial Institution (SIFI). I would like to clarify for the record for folks who will watch the debate next week, that you will take this responsibility of this 18-month rulemaking and do a thorough examination of the banks that fall into that category. And those who are claiming that somehow all enhanced prudential regulations of banks that fall into that category are going to suddenly magically disappear — that sure as heck is not the intent of this individual, and I hope it is not the intent of the Fed.
Chairman Powell: What I see us doing is creating a framework. We’ll be looking at all of the institutions are in that area and all of the risks that might arise in banks between $100 billion and $250 billion. And we will create a framework for assessing where systemic risk might be, where there might be regional risks. We will look at everything, and that framework will then be in place in 18 months. If there are institutions that are currently in that population or, over time, become systemically risky or even risky to themselves – the way the legislation is written it gives us a lot of flexibility to do that – and we will have that in place. We have not been shy about finding systemic risk [in banks with total assets] under $250 billion. We will feel comfortable doing this job I believe.
Senator Warner: I look forward to the debate next week. A lot of members have different views, but I think it is very important when people go about talking about you doing away with stress tests or eliminating any kind of enhanced prudential regulations, that is not our intent. There may be some tailoring that goes on in this new category, but particularly for the larger institutions, the status quo is going to remain.
Thank you, Mr. Chairman.