WASHINGTON, D.C.— Dennis Kelleher, President, CEO, and Co-founder of Better Markets, issued the following statement in response to a Friday afternoon meeting of the Board of Governors of the Federal Reserve System (Fed) to further weaken its stress tests of the largest banks:

“Today the Federal Reserve is proposing to destroy one of its most effective tools, one that stemmed the 2008 financial crash and prevents future crashes: robust stress tests of the biggest, most dangerous banks in the country. This proposal is extremely consequential and would literally hand the tests to those banks before the Fed administers the tests. This will destroy the effectiveness and integrity of the stress tests. When this is adopted, the process will become a charade.

“Stress tests play a critical role in ensuring financial stability and preventing crashes. They are supposed to inform the American public about the actual financial health of the largest banks and – critically – make sure that these banks have enough capital to absorb losses and prevent another financial crisis, taxpayer bailouts, and economic and human catastrophe. That’s why Wall Street hates them: they want the lowest capital possible which allows them to maximize profits, and robust stress tests prevent that by making sure Main Street Americans are protected from banks’ most dangerous activities. Gutting the stress tests as Wall Street wants and the Fed is proposing will lower banks’ capital, make them more fragile, and increase the risk of failures and bailouts.

“Proving how extreme and extremely dangerous these proposed changes are, the stress tests have already been significantly weakened – as proven repeatedly by results in which 100% of banks more than comfortably pass. But passing doesn’t mean they get their capital requirements minimized. The Fed’s proposed changes will now enable the banks to game the tests to reduce their capital requirements even more. By now giving banks the answers to the test before they take it, the tests will be essentially worthless.

“Unfortunately for the American people, this proposal is just the latest in a series of major deregulatory changes the Fed is making that will benefit Wall Street at the expense of Main Street. Adding insult to injury, the Fed is effectively misleading and misinforming the public by making and disclosing these changes one by one, rather than revealing its full agenda and the inevitable consequences. While the public gets to file comments on its proposals – the outcome of which are already decided by the Fed in consultation with Wall Street’s banks and lobbyists – the Fed gives Wall Street an inside seat at the table. For example, the Fed proposed its first major change to large bank capital regulations this summer before it held its public conference on capital regulations. And, even then, that conference was by invitation only and, surprise, was attended solely by the industry and its allies as the Fed’s invited guests.

“This piecemeal approach to implementing significant deregulations and failing to disclose the aggregate impact of the changes they plan to make are what Vice Chair Bowman criticized Gov. Barr for when he was Vice Chair. At least his changes were to protect Main Street and not Wall Street, which was the real basis for Bowman’ objection at the time. She is now doing the same thing, albeit for the benefit of Wall Street. Taking all the changes on the industry’s wish list together – as Better Markets has done – shows that the ultimate goal is to bring large bank capital levels back down to the reckless levels they had before the 2008 crash. That will be a disaster for the economy, the financial system, and hardworking Americans who will once again pay the bill for Wall Street’s recklessness unconscionably enabled by the Fed.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.