Bank Rule Changes Chip Away at Those Pesky Stress Tests
By Stephen Gandel
After a slow start, the Trump administration, with the help of Congress, may actually be “doing a number” to Dodd-Frank financial regulations, as the president promised he would, even bigger than many people realize. The changes to banking rules, though often incremental, have been coming pretty fast, and at the very least they highlight the many levers the administration and lawmakers have for deregulation. When a proposal to increase the leverage ratio of shadow-bank-like business development companies fell out of the Senate’s Dodd-Frank rollback last month because it was seen as too much of a giveaway to big banks, it passed as a late addition to the spending bill. Karen Shaw Petrou, managing partner of Federal Financial Analytics, who is widely viewed by both sides of the bank regulation debate as incredibly smart, contends that a case can be made that the Fed’s proposed changes to the stress test, including removing failing grades, will actually make the next financial crisis less severe by not restricting lending. But for that to be the case, the flexibility that the changes envision would have to be calibrated just right. In all likelihood, during the next financial crisis, regulators, and investors, would lock down the banks just as they did in the last one. That’s what happens in panics.