WASHINGTON — The Senate Banking Committee's top Democrat criticized the Federal Reserve Board's handling of stress test results for certain large banks.

In a Senate floor speech this week, Sen. Sherrod Brown of Ohio singled out the Comprehensive Capital Analysis and Review results for Goldman Sachs and Morgan Stanley, which he said "got passing grades" despite being unable to maintain minimum required capital levels. He also criticized the central bank's reportedly having discussed the results with the two firms.

“The Fed called them up, let them haggle over the test results, and allowed them to proceed with buybacks and dividends that would drain their required capital,” Brown said, according to prepared remarks released Monday evening.

Sen. Sherrod Brown, D-Ohio
"In what classroom in America would a teacher negotiate over test results and allow a student to pass the exam after earning an 'F?'" said Sen. Sherrod Brown, D-Ohio, the ranking member of the Banking Committee. Bloomberg News

When the Fed announced the CCAR results June 28, it said changes to the tax law led to a one-time capital reduction for the banks.

“Each firm's capital ratios, under the capital plans they originally submitted and with the one-time capital reduction from the tax law changes, fell below required levels when subjected to the hypothetical scenario," the Fed said in its press release last month. "This one-time reduction does not reflect a firm's performance under stress and firms can expect higher post-tax earnings going forward.”

Brown said buybacks and dividends "juice stock prices, but do little to increase long-term growth in companies or reward the workers that make a company’s success possible."

"In what classroom in America would a teacher negotiate over test results and allow a student to pass the exam after earning an 'F'? But the stakes in this case are a lot higher than one midterm exam," he said. "We’re talking about the biggest banks in the country, and whether they send money to rich investors or instead have enough skin in the game to protect taxpayers."

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