House OKs bill exempting non-bank financials from stress-test requirement

Legislation that exempts non-bank financial companies from annual “stress tests” was approved by the House Tuesday.

However, the House agreed to amend the bill with a provision from Rep. Maxine Waters (D-Calif. and ranking member of the House Financial Services Committee), which would restore the Federal Reserve Board’s discretionary authority to stress-test any non-designated non-bank, provided that certain conditions are met.

H.R. 4566, the Alleviating Stress Test Burdens to Help Investors Act, sponsored by Rep. Bruce Poliquin (R-Maine) was approved on a vote of 395-19. It would eliminate “burdensome costs for nonbank financial companies” by eliminating stress testing requirements imposed on them by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The committee report for the legislation asserts that the stress tests “are structured and designed for banks and do not appropriately reflect risks to nonbanks.”

Under current law, the Federal Reserve is required to conduct annual stress tests of large bank holding companies and non-bank SIFIs to evaluate ‘‘whether such companies have the capital necessary to absorb losses as a result of adverse economic conditions.’’ The Federal Reserve also has discretion to require the same tests as non-bank financial companies that are not systemically important.

Additionally, according to the committee report, the Dodd-Frank Act requires ‘‘financial companies’’ with total consolidated assets of more than $10 billion, and that have a primary federal financial regulatory agency, to conduct annual stress tests in accordance with regulations issued by the relevant agency.

The bill now heads to the Senate for consideration.