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Monday, February 13, 2017

Toomey: Time to Rethink CCAR

In a letter to Federal Reserve Chair Janet Yellen, Sen. Pat Toomey (R-Pa.) called for the Fed to do away with its Comprehensive Capital Analysis Review process for banks with $10 billion or more in assets. Toomey argued that the requirement has added unnecessary compliance costs, restricted lending to homebuyers and small business owners and has ultimately increased systemic risk to the financial system.

Toomey noted that unlike the Dodd-Frank Act stress testing regime, the CCAR process is not required by law, but continues to cost banks millions of dollars in regulatory expenses each year. He added that CCAR “has the perverse effect of increasing systemic risk,” pointing to research suggesting that banks subject to the CCAR tests have started “underweighting their balance sheets in residential mortgages and small business loans,” leading to curtailed lending and a correlation of the risk profiles among the nation’s largest banks.

Toomey urged the board to end the CCAR process altogether and focus instead on supervising the stress tests conducted internally by individual banks and using the legally required Dodd-Frank Act stress test results to draw conclusions about the health of banks across the industry.

Read the letter.

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