Fed's Tarullo Says Central Bank Is Considering 'Stress Test' Changes
November 05 2015 - 4:10PM
Dow Jones News
CHICAGO—Federal Reserve governor Daniel Tarullo said the central
bank could change the way its "stress tests" work for banking firms
with close to $50 billion in assets.
Mr. Tarullo, providing a bit more detail than he has in the
past, said the Fed is specifically rethinking the "capital
planning" portion of the test, which oversees if and how the banks
return money to shareholders through dividends and buybacks.
"We are trying to think of how we might reshape the capital
planning part of it, which is more within our discretion, to make
it somewhat less burdensome for the banks that are closer" to $50
billion in assets, he said during a conference on international
banking at the Federal Reserve Bank of Chicago.
The Wall Street Journal reported in June that the Fed was
seeking feedback on the tests, which apply to about 30 banks from
Zions Bancorp., with about $58 billion in assets, to J.P. Morgan
Chase & Co., which is the largest U.S. bank by assets more than
$2 trillion.
The banks on the lower end of that spectrum have been pushing
both the Fed and Congress to make the tests less costly for them.
The tests examine a bank's ability to weather a recession, and the
2010 Dodd-Frank law mandates them for banks with more than $50
billion in assets.
On Wednesday, Fed Chairwoman Janet Yellen reiterated that she
would support some modest changes to that part of the law,
including possibly raising the $50 billion threshold.
Mr. Tarullo also agreed with Ms. Yellen's assessment that, for
the very largest banks, the Fed isn't prepared to ease rules. "We
think there is still work to be done with respect to the largest,
most systemically important institutions," he said.
Separately, Mr. Tarullo pushed back against criticism of the
central bank's rules for foreign-owned banking firms doing business
in the U.S., saying the old regulatory approach allowed banks to
pursue "unsustainable activity that eventually ran badly
aground."
Mr. Tarullo, in remarks prepared for the conference, took on
detractors who say the Fed's regulatory regime for foreign-owned
firms has unnecessarily restricted the firms' flexibility to do
business across borders.
The remarks didn't address the Fed's interest-rate policy.
Since the 2008 financial crisis, the Fed has forced global banks
doing a large amount of business in the U.S. to consolidate their
U.S. organizations into one holding company that holds more
loss-absorbing capital to protect against losses in a downturn.
Last week, the Fed proposed adding a new requirement that those
holding companies issue loss-absorbing debt.
"The overarching guideline is that each jurisdiction should take
responsibility for protecting the financial stability of its own
markets as its contribution to achieving global financial
stability," Mr. Tarullo said, repeating an argument he has made
previously in support of the rules. The U.S. has a particular
responsibility to protect stability, he said, because "the extent
of this responsibility obviously increases with the size and
significance of the jurisdiction's financial markets."
Mr. Tarullo also called for greater international cooperation on
enforcing financial rules that global regulators have agreed to
implement since the 2008 crisis. Countries that have expertise in
jobs, such as assessing risky assets and running "stress tests,"
should share staff with countries that have less experience, he
said. This will help countries trust one another if they have to
deal with a crisis, he added.
Write to Ryan Tracy at ryan.tracy@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 05, 2015 15:55 ET (20:55 GMT)
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