Overview
Title
To require the Board of Governors of the Federal Reserve System to issue a rule relating to stress capital buffer requirements, and for other purposes.
ELI5 AI
H.R. 8287 is like a rule that tells a group of people in charge of banks (the Federal Reserve) to make sure banks have enough money to be safe, even if things get tough. It also says they can't check how non-bank companies prepare for things related to weather changes, and someone must check every few years if these rules are working well.
Summary AI
H.R. 8287 requires the Federal Reserve's Board of Governors to establish rules for the stress capital buffer requirements, which are financial thresholds banks must meet to ensure they can survive economic stress. The bill mandates that any changes to these rules must go through a public notice and comment process. It also states that the Board cannot impose climate-related stress tests on nonbank financial companies. Additionally, every three years, the Comptroller General must review the Board’s stress tests and report to Congress on whether they are effective and identify risks to financial institutions and the U.S. financial system.
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AnalysisAI
General Summary of the Bill
The proposed legislation, titled the "Stress Testing Accountability and Transparency Act," aims to enhance the regulatory framework concerning the financial stability of bank holding companies. Introduced in the House of Representatives, this bill mandates the Board of Governors of the Federal Reserve System to issue rules related to stress capital buffer requirements and the scenarios used in stress testing. Additionally, it prevents nonbank financial companies from being required to undergo climate-related stress testing and calls for a periodic study by the Government Accountability Office (GAO) on the effectiveness of these stress tests.
Summary of Significant Issues
One of the primary issues is the tight deadline of 90 days for the Federal Reserve to establish rules for the stress capital buffer, which may not provide sufficient time for comprehensive analysis and consultation. Additionally, limiting the Board's authority to require climate-related stress tests for nonbank companies could potentially overlook significant risks posed by environmental factors. There is also concern regarding the accessibility of the legal cross-references and the ambiguity in defining criteria for stress test scenarios, which could lead to inconsistent application and understanding. Finally, the frequency and clarity of the GAO report on these tests raise concerns about its adequacy and practicality in tracking evolving financial risks.
Impact on the Public
For the general public, this bill represents an effort to ensure transparency and accountability in the financial systems that underpin the U.S. economy. The rules around stress testing are intended to prevent financial crises and protect consumers and businesses by ensuring banks and other financial institutions remain robust and prepared during times of economic uncertainty.
However, by excluding climate-related factors from the stress testing of nonbank financial companies, the bill may neglect a crucial aspect of emerging risks, particularly as climate change continues to affect global and local economies. This oversight may, over the long term, undermine public confidence in the financial system's capacity to adapt to new challenges posed by environmental changes.
Impact on Specific Stakeholders
For regulatory bodies like the Federal Reserve, the bill imposes specific directives and timelines that could complicate their ability to adapt rules to rapidly changing circumstances in the financial landscape. The requirement for notice and comment rulemaking as the sole method to amend the rules could hinder agile responses to new developments in financial markets.
Financial institutions, particularly nonbank entities, might view the prohibition on mandatory climate-related stress testing as relief from additional regulatory burdens in the short term. However, this could later expose them to unforeseen vulnerabilities related to climate change, which may impact their long-term viability and reputation.
As for policymakers and the GAO, the legislation prompts a need for more comprehensive evaluation frameworks and possibly more frequent updates to reflect current financial realities. Without clear guidelines or metrics, the effectiveness of evaluating and improving the preparedness of financial systems could be compromised, posing indirect risks to the U.S. and global economies.
Issues
The requirement in Section 2 for the Board of Governors of the Federal Reserve System to issue a rule within a strict 90-day timeline may not allow for thorough analysis and comprehensive rulemaking, potentially impacting the effectiveness and accuracy of the stress capital buffer requirements.
Section 3's prohibition on subjecting nonbank financial companies to climate-related stress tests may limit the Board's ability to assess risks related to climate change, possibly overlooking crucial financial risks tied to environmental factors, which is significant given the increasing attention to climate change impacts on financial systems.
The reference in Section 2 to another document for defining 'stress capital buffer requirement' could complicate understanding for stakeholders unfamiliar with legal cross-referencing, raising transparency and accessibility concerns.
The lack of specific criteria or standards for establishing stress test scenarios in Section 3 could lead to ambiguity and inconsistent application, potentially weakening the reliability of stress tests.
Section 4 lacks clarity on the costs or budget for the GAO report, which risks undefined or unchecked spending that could be concerning from a fiscal responsibility perspective.
The ambiguous term 'sufficiently robust' in Section 4 could lead to varied interpretations of the GAO report's assessments, potentially affecting the reliability of feedback on stress test effectiveness.
The infrequent three-year cycle for the GAO report in Section 4 may not be adequate to address rapidly evolving financial risks, potentially leading to outdated insights and recommendations.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the Act specifies its short title, which is the "Stress Testing Accountability and Transparency Act".
2. Rulemaking related to stress capital buffer requirements Read Opens in new tab
Summary AI
The rule requires the Federal Reserve Board to establish guidelines for determining a bank's stress capital buffer within 90 days of the section being enacted. Any changes to these guidelines must go through a formal notice and comment process.
3. Rulemaking relating to stress testing Read Opens in new tab
Summary AI
The section outlines that starting the year after its enactment, the Board must release a rule detailing the scenarios for stress tests at least 30 days in advance. It also prevents the Board from requiring non-bank financial companies to undergo climate-related stress tests under the authority of the Financial Stability Act.
4. GAO report Read Opens in new tab
Summary AI
The law requires the Government Accountability Office (GAO) to study and report to Congress every three years on the stress tests conducted by the Board under the Financial Stability Act of 2010. The report must assess if the stress tests are strong enough to ensure preparedness and if they effectively identify important risks to nonbank financial institutions and the overall stability of the U.S. financial system.