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Fed governor backs stress test surcharge for biggest banks

Former Bank Of Israel Governor Stanley Fischer Nomination Hearing For Fed Vice ChairmanFormer Bank Of Israel Governor Stanley Fischer Nomination Hearing For Fed Vice Chairman
Lael BrainardBloomberg via Getty Images

Federal Reserve Gov. Lael Brainard said Thursday morning that she supports a controversial proposal to include capital surcharges for the eight largest U.S. banks during the Fed’s annual stress tests. The surcharges, which bankers have opposed, would require those banks to hold more capital — which increases banks’ resilience in case of a downturn — than other financial institutions.

The surcharge, which is not yet finalized, would go into effect in 2019.

Brainard said that the Dodd-Frank financial reform law, which turns five this month, is entering a critical moment of implementation. “We are entering an important period when the more stringent standards that we are putting in place to reduce expected losses to the system should inform the cost-benefit analysis of these institutions’ size and structure,” she said.

The eight largest banks account for 57 percent of the total assets in the U.S. banking system, Brainard said, a slice of the pie only slightly smaller than in 2009.