Stress tests could be watered down in Dodd-Frank shake up
The days of US stress tests for banks in their current guise could be numbered as Donald Trump and his team dismantle the Dodd-Frank rules.
The President signed an executive order earlier this month to review the 2010 Dodd-Frank financial regulations.
Now, a leaked memo from House Financial Services Committee chairman Jeb Hensarling, which has been seen by Bloomberg, has revealed that stress tests are in the crosshairs and a draft version of the legislation to make the changes possible could be published in the coming weeks.
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According to the memo, banks may only be subjected to US stress tests every other year, as opposed to every year as they are at the moment, while some lenders could be exempted entirely if they agree to dramatically increase their capital.
The proposals would also scrap the so-called qualitative test element, which reviews banks' plans for managing capital and risk and is thought to be one of the toughest parts of the testing.
The Federal Reserve's yearly stress tests are designed to measure banks' financial health, and aim to ascertain whether lenders have enough capital to survive a sharp financial downturn.
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Meanwhile, Hensarling's memo also revealed a planned crackdown on the powers of the Consumer Financial Protection Bureau.
Any changes will need to be passed into law before they can take effect, so there is no certainty any of the proposals will become a reality.