By Victoria McGrane And Rachel Louise Ensign
WASHINGTON--A top Federal Reserve official is reaching out to a
variety of bank executives to discuss how the central bank might
make its annual "stress tests" less stressful.
The discussions between Fed governor Daniel Tarullo and bank
executives comes as Washington and Wall Street debate whether
postcrisis rules--including the annual tests of banks' ability to
withstand tough times--should be scaled back for smaller banks.
Some banks say the burden of complying with the tests far outstrips
the benefit to regulators or the financial system.
Mr. Tarullo has held at least two meetings with bank executives
in recent weeks, including one soliciting feedback on the stress
tests from a handful of large regional banks, according to people
familiar with the meetings.
At Mr. Tarullo's invitation, the chief executives of U.S.
Bancorp, Capital One Financial Corp., PNC Financial Services Group
Inc. and BB&T Corp. met with Mr. Tarullo for about an hour on
the morning of May 29 to discuss potential changes to the
process.
The banks asked him to tailor the exercise to better fit their
profiles, according to people familiar with the meeting
Mr. Tarullo also has discussed possible stress-test changes with
executives at larger banks, including at a meeting in New York the
week of June 3 with the chief financial officers of eight of the
nation's largest banks, according to people familiar with the
gathering.
Meeting with Mr. Tarullo were the finance chiefs of Goldman
Sachs Group Inc., Citigroup Inc., Bank of America Corp., J.P.
Morgan Chase & Co., Morgan Stanley, Wells Fargo & Co.,
State Street Corp. and Bank of New York Mellon Corp.
The Fed is taking a deeper look at how it might modify the
annual stress-test exercise, which began after the 2008 financial
crisis to ensure banks have enough capital to withstand a severe
economic downturn.
In addition to soliciting ideas from banks, Fed officials are
talking to academics and industry analysts about the tests, said a
Fed spokesman. Fed officials will take what they hear from various
parties and discuss possible changes but haven't committed to
making any tweaks. Any major changes that result from their
analysis would happen in 2017 at the earliest, the Fed spokesman
said.
The central bank has full discretion to change the way stress
tests are run, though the 2010 Dodd-Frank law determines which
banks must submit to annual review.
At the May 29 meeting, Mr. Tarullo expressed the sentiment that
the stress test doesn't have to remain unchanged, according to one
person familiar with the gathering.
While Congress is considering legislation that could exempt some
smaller regional banks from the tests, the larger regional firms
Mr. Tarullo met with are unlikely to be included in any such
carve-out. People familiar with the meetings said bank executives
weren't pushing for any exemption in the meeting.
Most of the banks declined to comment. A spokesman for State
Street didn't respond to a request for comment. Mr. Tarullo
"graciously invited PNC to share feedback...and PNC accepted," a
PNC spokesman said. Spokesmen for BB&T and U.S. Bank also
confirmed their CEOs attended the meeting.
The Fed's evaluation of its stress tests will play out against a
broader debate in Congress over how to tailor postcrisis rules to
smaller financial institutions. Senate Banking Committee Chairman
Richard Shelby (R., Ala.) has introduced an ambitious regulatory
overhaul package that includes easing regulations for certain
regional banks as well as community banks. His bill would raise the
level at which banks qualify for tougher capital, liquidity and
other rules--including the mandate they undergo annual stress
testing--from $50 billion in assets to $500 billion, though
regulators would be able to decide if individual banks below the
$500 billion level warrant tougher rules.
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