House approves Poliquin bill to strike stress tests for non-bank entities

U.S. Rep. Bruce Poliquin (R-ME) on March 20 saw the U.S. House of Representatives pass his bill to slash capital-based stress testing regulations for non-bank financial institutions from current law on a 395-to-19 vote.

The Alleviating Stress Test Burdens to Help Investors Act, H.R. 4566, which Poliquin introduced on Dec. 6, 2017, would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act to exempt non-bank financial institutions like mutual funds – which are one of the ways more than half of U.S. households save for retirement, education or new homes – from the existing capital-based stress testing regulations.

According to Investopedia, stress testing is a simulation technique often used in the banking industry, but also on asset and liability portfolios, to determine their reactions to different financial situations, and they also are used to gauge how certain stressors could affect a company, industry or specific portfolio.

“The ‘stress-test’ regulation is a well-intentioned idea, but it must be applied in the right way for each institution and not in a ‘one-size-fits-all’ approach, so that it can work as it was originally envisioned,” Rep. Poliquin said. “My bill is an important and bipartisan fix that will make sure our regulations are applied properly and fairly.”

If enacted, H.R. 4566 would exempt nonbank financial institutions that are regulated by the U.S. Securities and Exchange Commission or the U.S. Commodity Futures Trading Commission from existing law, but would not apply to institutions supervised by the Federal Reserve.

The U.S. House Financial Services Committee, under the leadership of U.S. Rep. Jeb Hensarling (R-TX), who chairs the committee, approved H.R. 4566 on March 15. Prior to the bill’s passage on Tuesday, Hensarling spoke on the House floor in favor of the bill. “Applying a one-size-fits-all regulatory structure – in this case, a bank-centric model – is not only bad for the asset management industry, but far more importantly, for our constituents that they serve who choose to save and invest,” he said.

Hensarling told his colleagues that Poliquin’s bill “is common sense: It is not one-size fits all; it recognizes that the primary regulator of nonbank financial companies is better-suited than a bank regulator to determine whether a stress test might be useful to address risks.”

H.R. 4566 has been referred to the U.S. Senate Banking, Housing, and Urban Affairs Committee.