The stress tests banks now have to undergo don’t necessarily have to be so complicated, former FDIC Chair Sheila Bair told CNBC on Thursday.
“There’s certainly some simplification you can do around the stress testing process and improvements in transparency,” she said in an interview with “Closing Bell.”
On Thursday, Federal Reserve Governor Jerome “Jay” Powell told CNBC the central bank will be making changes in the way it regulates banks.
While most U.S. banks have been passing the stress tests on a regular basis, they have criticized the process as cumbersome.
“We do hear the complaints and we are working now as we have continuously to provide more information, more transparency,” Powell said.
Bair, who was chair of the Federal Deposit Insurance Corp. during the financial crisis, said she is “glad the Fed is moving in that direction.”
One area that could be reformed is the qualitative part of the test, which is somewhat subjective and has been “murky,” she said. Right now, banks have to pass both a quantitative piece and a qualitative piece to pay dividends.
“It’s a good process but to have dividends based on that, I think, is tough,” said Bair, who is now president of Washington College.
However, she is adamant that capital standards not be weakened for any banks — just simplified for small banks.
Specifically, the risk-based standard process is “overly complex” and should be eliminated for smaller banks, she said.
“That would be another thing I think would be fairly straightforward to do, provide a lot of relief to community banks and very simply achieved.”
— CNBC’s Jeff Cox contributed to this report.