The U.S. Federal Reserve announced all 34 of the country’s biggest banks passed the second round of its annual stress test, determining they are strong enough to withstand a major economic downturn.
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Former SEC Chairman Harvey Pitt says the purpose of the Fed’s stress test is to instill confidence into people that banks can deal with economic stressors.
“I think it’s changing, but not in an excessive way. We're looking at prudent risk and having the comfort of at least an in-depth stress test and review so that people have confidence the banks have enough reserves and capital available to make sure that they can deal with any contingency,” Pitt said during an interview on FOX Business.
Pitt added that banks may be able to gradually monitor themselves and believes there “is clearly room to move the Fed out of these tests.”
“However I think prudence requires that it be done gradually,” Pitt said. “I think these banks have the ability, the know-how, the expertise to make certain they have enough capital reserves and that the Fed can set the standard for them, but we don’t need the kind of in-depth invasive presence of the federal government in all this.”