BPI Supports the Stress Testing Accountability and Transparency Act

Dear Chairman Hill, Ranking Member Waters, and Members of the Committee:

The Bank Policy Institute (BPI) strongly supports H.R. 5270, the Stress Testing Accountability and Transparency Act, sponsored by Rep. Bill Huizenga.

The current Federal Reserve stress testing regime is administered illegally by utilizing models and scenarios to develop a bank's capital requirements that are not disclosed transparently and not subject to a notice-and-comment process as required under the Administrative Procedure Act. As a result, these stress tests have often resulted in inaccurate and volatile results that impose significant economic costs, including reduced credit availability, slower employment growth and decreased market liquidity.

The Stress Testing Accountability and Transparency Act is an important step forward in correcting these issues and ensuring that the Federal Reserve's stress testing framework is carried out in a more transparent and accountable manner by requiring the Federal Reserve to codify through notice-and-comment rulemaking the models, assumptions, formulas and methodologies underlying its annual stress tests and the stress capital buffer.

BPI strongly believes that the Stress Testing Accountability and Transparency Act will help make the stress testing regime more accountable while ensuring that capital that otherwise could be used to fuel economic growth isn't left on the sidelines. While the Federal Reserve has signaled that it will be making many of these changes on its own, ensuring that these standard processes and good governance measures are enshrined in statute will provide banks with greater certainty that these supervisory tools are conducted fairly and accurately.

We commend Representative Huizenga for his leadership on this issue, and we urge the Committee to advance this legislation.

Thank you for your consideration.

Sincerely,

Bank Policy Institute