Last month, four of the five current governors of the Federal Reserve Board voted to weaken the stress tests that the nation’s largest banks are put through to increase their capacity to survive a financial crisis without collapsing. This was a serious misstep. Out of respect for the organization where I worked as a bank supervisor for 23 years, and where I oversaw the stress test process for seven years, I’ll call it an unforced error. A less generous interpretation might be that after years of pushback from the banks, the Fed acquiesced and will abandon a key part of a powerful post-crisis tool that has improved large bank supervision and strengthened the financial system.
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