Fed keeps stress-test clamp on banks amid Dodd-Frank rewrite

The financial industry has been jubilant since the Senate passed a GOP rollback of banking rules last week. But even if the DoddFrank overhaul clears the House, U.S. lenders will remain inside a cage built by the Federal Reserve.

That’s because the bill, sponsored by Senate Banking Committee Chairman Mike Crapo, doesn’t touch the biggest constraint imposed on firms after the 2008 financial crisis: the Fed stress tests known as the Comprehensive Capital Analysis and Review.

While the legislation would free two dozen banks with less than $250 billion of assets from some oversight, the CCAR exams mean regulators will still have control over firms’ capital buffers and whether they can return profits to shareholders. Another burden the Crapo bill would leave in place is the Fed’s insistence that banks keep a stockpile of ready-to-sell assets on hand to meet liquidity needs in an emergency.

“Anyone presuming that this bill lets banks run free is going to be disappointed,” said Ian Katz, an analyst with Capital Alpha Partners in Washington.

Rather than taking power away from the Fed, the Republican-driven Senate legislation gives it more leeway to tailor oversight to banks of different sizes. Such an outcome would run counter to previous efforts by GOP lawmakers to curtail the Fed’s authority.