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House Passes Bills to Strengthen Lending Accountability

The House of Representatives recently passed two bipartisan bills that are aimed at streamlining processes for financial institutions across the country. While H.R. 4293, the Stress Test Improvement Act of 2017, looks to improve the efficiencies of the current stress test requirements for banks, H.R. 4061, The Financial Stability Oversight Council (FSOC) Improvement Act of 2017 looks at reforms for the designation process for nonbanks.

Both the bills will now head to the Senate for a vote. “At the end of the day, it’s not really the banks that are the subject of these regulations. At the end of the day, it’s their customers,” said Financial Services Committee Chairman, Senator Jeb Hensarling of Texas. “What the Financial Services Committee and this House have to do is ensure that there is affordable and available credit to help fund people’s American dreams. That’s what these important bipartisan bills will help achieve.”

The FSOC Improvement Act, which was passed by a vote of 297-121, aims to reform the FSOC designation process to enhance the transparency and procedural fairness of the nonbank systemically important financial institutions (SIFI) designation process. According to this bill, while the FSOC will retain the power to make a determination regarding any nonbank financial company, the bill would afford affected institutions a greater opportunity to be heard by the functional regulator and modify its business, structure, or operations prior to the designation.

“Today’s vote on H.R. 4061 is a critical step toward providing the FSOC with additional ways to address potential risks to the financial system, while also making the systemically important financial institution (SIFI) process more accountable and transparent,” said Paul Schott Stevens, President and CEO of Investment Company Institute (ICI). “This legislation would enhance the FSOC’s ability to reduce systemic risk and ensure that nonbank SIFI designations are reserved for limited cases when identified risks to financial stability cannot be addressed more effectively by an entity’s primary regulator or action by the entity itself.”

The Stress Test Improvement Act, which was passed by a vote of 245-174, would streamline the current regime for stress testing banks and make the company-run stress test an annual exercise. It would reduce the number of supervisory scenarios from three to two and allow institutions to determine if they have sufficient capital to absorb losses and support the operations during the harshest economic conditions.

This bill would also limit the ability of the Federal Reserve to object to a company’s capital plan based solely on qualitative deficiencies.

“Stress tests are an important regulatory tool that have much improved the safety of our financial system,” said Senator Maxine Waters of California while opposing the passage of the bill. “When we crafted Dodd-Frank, we mandated these stress tests and put in place other enhanced prudential guardrails for large banks to not only prevent damage to our economy but also help grow our economy. And they are working. But H.R. 4293 weakens the rigor and frequency of those stress tests, a move that simply makes no sense.”

About Author: Radhika Ojha

Radhika Ojha is an independent writer and editor. A former Online Editor and currently a reporter for MReport, she is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
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