Dodd-Frank’s regulatory scheme, passed in the wake of the 2008 financial crisis, aimed to limit the risks from any future financial shock. A key component of that protection was the requirement that banks regularly conduct and pass what are known as “stress tests”-computer simulations testing how well a bank’s mix of assets and liabilities will withstand economic downturns.
This year, Congress has begun an effort to chip away at some of these regulations, including the stress-test provision. A bill with significant bipartisan support is set to come to a vote this week. It would allow banks with less than $250 billion in assets to avoid the stress-test provisions and other strict supervision requirements. Right now, small banks with under $50 billion in assets receive this lighter scrutiny. This regulatory change then affects only 25 or so midsize banks. Other changes being considered include eliminating strict requirements regarding required assets on hand for certain banks.
Critics, including Senators Elizabeth Warren and Sherrod Brown, are concerned this deregulation effort will loosen many of the rules most critical to stopping another financial crisis. They warn that Congress is forgetting the causes of the 2008 crisis and ignoring the very real potential that such downturns will happen again if banks are not held to stricter standards.
What do you think? Do you support Congress’s efforts to loosen Dodd-Frank?
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