Banks did well in the latest round of stress tests, but Senate Democrats are not receptive to the idea that the good performance is a case for regulatory relief.
Several Democrats on the Senate Banking Committee banded together Tuesday to make the case that successful stress tests are a sign that the 2010 Dodd-Frank law and the new Wall Street rules are proving effective, not that they should be loosened.
The Democrats were responding to bank groups that argued that last week's stress tests, which showed that banks would maintain high capital levels in a simulated crisis, proved that the banking system is safe and that the government can ease some of the rules.
"If no one fouls out in a game, you don't fire the referees," said Sen. Sherrod Brown of Ohio, the top Democrat on the banking panel. "Dodd-Frank has led to a safer banking system, and we should not scrap the rules because the banking system is less fragile than it was a few years ago – that's how we know they're working."
The banking industry's performance on the stress tests has improved in recent years as the country has recovered from the financial crisis and firms have implemented the new rules. On Wednesday, they are scheduled to receive the results of the second part of the stress tests, in which regulators can fail banks that they see as risks and prevent them from paying dividends to investors.
Meanwhile, the Trump administration has promised major relief for banks, both through legislation and through administrative changes.
With the Republican effort to change Dodd-Frank rules in the background, the four Democratic senators emphasized their opposition to relaxing regulations. Joining Brown were Jack Reed of Rhode Island, Robert Menendez of New Jersey and Elizabeth Warren of Massachusetts, who said that passing a stress test "is the minimum a big bank can do" and that the effort to use the good results from last week to push for regulatory relief "is pure lobbyist spin."