Sen. Sherrod Brown, D-Ohio, criticized the Federal Reserve on Tuesday for allowing Goldman Sachs and Morgan Stanley to pass their annual stress tests even though the banks fell short on some requirements.
“In the past, bank stress tests were real tests,” the Ohio senator said Tuesday afternoon. “These days, it is more like a cozy conversation between friends.”
The Fed found during its annual bank stress tests that Goldman Sachs and Morgan Stanley would see their capital levels fall below regulatory minimums in the case of a financial crisis, thanks to one-time effects of the tax cuts. In other words, they would become too indebted and would be at risk of becoming insolvent.
But because the problem was related to the Republican tax cuts, which are set to boost bank profits over time, the Fed didn’t fail either bank. A failing grade would have prevented the banks from paying out distributions to investors.
Instead, the Fed limited the bank’s investor payouts to what they have paid out in previous years. A Fed official described that limitation as a middle ground between failing the banks and approving their planned dividends and stock buybacks.
Fed officials also called the banks before the stress tests results were finalized to lay out the terms of that compromise, the Wall Street Journal reported Monday.
The Fed is chaired by Jerome Powell, a Trump appointee, and the stress tests are overseen by vice chairman for supervision Randal Quarles, another Trump selection.
Brown claimed Tuesday that the Trump Fed executives are “big bank lapdogs,” and that they are risking another financial crisis by weakening financial regulations.
