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I conducted Dodd-Frank Act Stress Tests for one component of a large bank. For a $400B portfolio I was able to do it with a team of 4 people including myself pl

I conducted Dodd-Frank Act Stress Tests for one component of a large bank. For a $400B portfolio I was able to do it with a team of 4 people including myself plus a $100k/year license to Barra and it takes about a week of the whole team’s focus. The thing is, we were already employed by the bank to run risk management and the bank already had the subscription to the software. So from the bank’s perspective it was close to 0 marginal cost to conduct the stress tests because even if they weren’t required, we would be doing them anyway as good risk management practice. If a bank says that stress tests are too expensive to run, that means that absent regulatory requirements they would perform no risk management.

jszymborski 4y ago
> If a bank says that stress tests are too expensive to run, that means that absent regulatory requirements they would perform no risk management. This feels so damn true about almost every megacorp belly-aching about regulation.
- ryandrake 4y ago
  Exactly. But also for smaller companies whining about government regulation. The “regulation” is what’s expensive, not the government part. If they can’t afford government regulation, they can’t afford self-regulation either, unless their idea of self-regulation is “do nothing and keep the money.”
  - downrightmike 4y ago
    “do nothing and keep the money.” That's the best definition of deregulation I've seen.
    - elcritch 4y ago
      Don't forget, receive bailouts if you go bust.
  - dspillett 4y ago
    > “do nothing and keep the money.” Or “do nothing until someone(s) else gets stung/slapped, and hope that it is someone/someones else not you, so you are around to learn from the mistake”.
- johndhi 4y ago
  Just chiming in as a lawyer who works for a fairly big corporation. You're imagining a scenario where one set of clearly written and fairly interpreted rules applies to your core business. You're excluding scenarios where there are fifty states and two hundred countries wildly swinging back and forth from idiotic legislation drafted to apply to three companies (Google, Facebook, Amazon) that is impossible to apply to everyone else. Imo the situation I describe is worthy of belly aching. I don't work in finance so I guess theoretically the US banking system could be easier to comply with than everything else - but I definitely disagree that everything else is easy to comply with.
  - Clent 4y ago
    Sounds like running a multinational corporation has some overhead. The idea that we shouldn't regulated because it's too hard, is the same rationale for suppressing wages, costs money. For a corporation, too hard === costs money. No corporation is entitled to exist.
kortilla 4y ago
I think your comment is agreeing with what the parent said. If you did it for a $400b portfolio that was only a component of the bank, it was a large bank. Hiring a team of 5, paying a $100k/year software license, etc are big barriers when you’re a small regional bank with $30 million in deposits.
roenxi 4y ago
Doing the stress tests isn't where the cost would be coming from; the issue is more about the distraction of making sure that compliance is in place. I'd draw an analogy to having breakfast. If we legally required people to have breakfast every day, that would actually be quite expensive. It'd go from a reflex to something that has to be considered, we have to spend a little bit of time creating evidence that we had breakfast to satisfy the regulator, there'd have to be enforcement where parents check on their kids to make sure they have breakfast, situations where it doesn't make sense to have breakfast (eg, really excessive sleep-ins) now need big reworks to make sure that despite that someone rolls out of bed to have breakfast. The police would roll in and muck up people's life because they skipped breakfast one day due to illness. It'd be a debacle. It is funny to even imagine what mandatory breakfast would look like if we tried to legally enforce it. It would be expensive, both in dollar figures and hours of lives wasted; no question of it. Just because the act itself is cheap and necessary doesn't make legal compliance cheap and easy. There is a huge gap between the everyday "should do" and the legal "must do".
- cjalmeida 4y ago
  That’s an incredibly bad analogy. A more apt one would be lobbying FAA to give up pilot mandatory rest time for regional jets (eg. ERJs) as “they’d be too expensive compared flying with wide bodies 777”
- mym1990 4y ago
  The issue is that you think making sure compliance being in place is a "distraction". This is like devs saying writing test classes is a "distraction", or having an infosec team is a "distraction", or having seatbelts in cars is a "distraction".
  - roenxi 4y ago
    I feel that is an unfair interpretation because there was one phrase spent on the word "distraction" and then a long paragraph included comparing stress tests to breakfast. If you feel breakfast is unimportant then more power to you I suppose, but I disagree.
jeron 4y ago
>absent regulatory requirements they would perform no risk management. did SVB do any risk management either?
- stefan_ 4y ago
  They didn't have a Chief Risk Officer for 9 months, just hired one in January.
edgyquant 4y ago
Where did anyone say it was a stress test that was expensive? They literally said “complying with” not “ensuring you’re compliant with”
- t-writescode 4y ago
  Would you be so kind as to explain the difference in this case and what would make one more expensive than the other?

jszymborski 4y ago

> If a bank says that stress tests are too expensive to run, that means that absent regulatory requirements they would perform no risk management. This feels so damn true about almost every megacorp belly-aching about regulation.

ryandrake 4y ago
Exactly. But also for smaller companies whining about government regulation. The “regulation” is what’s expensive, not the government part. If they can’t afford government regulation, they can’t afford self-regulation either, unless their idea of self-regulation is “do nothing and keep the money.”
- downrightmike 4y ago
  “do nothing and keep the money.” That's the best definition of deregulation I've seen.
  - elcritch 4y ago
    Don't forget, receive bailouts if you go bust.
- dspillett 4y ago
  > “do nothing and keep the money.” Or “do nothing until someone(s) else gets stung/slapped, and hope that it is someone/someones else not you, so you are around to learn from the mistake”.
johndhi 4y ago
Just chiming in as a lawyer who works for a fairly big corporation. You're imagining a scenario where one set of clearly written and fairly interpreted rules applies to your core business. You're excluding scenarios where there are fifty states and two hundred countries wildly swinging back and forth from idiotic legislation drafted to apply to three companies (Google, Facebook, Amazon) that is impossible to apply to everyone else. Imo the situation I describe is worthy of belly aching. I don't work in finance so I guess theoretically the US banking system could be easier to comply with than everything else - but I definitely disagree that everything else is easy to comply with.
- Clent 4y ago
  Sounds like running a multinational corporation has some overhead. The idea that we shouldn't regulated because it's too hard, is the same rationale for suppressing wages, costs money. For a corporation, too hard === costs money. No corporation is entitled to exist.

kortilla 4y ago

I think your comment is agreeing with what the parent said. If you did it for a $400b portfolio that was only a component of the bank, it was a large bank. Hiring a team of 5, paying a $100k/year software license, etc are big barriers when you’re a small regional bank with $30 million in deposits.

roenxi 4y ago

Doing the stress tests isn't where the cost would be coming from; the issue is more about the distraction of making sure that compliance is in place. I'd draw an analogy to having breakfast. If we legally required people to have breakfast every day, that would actually be quite expensive. It'd go from a reflex to something that has to be considered, we have to spend a little bit of time creating evidence that we had breakfast to satisfy the regulator, there'd have to be enforcement where parents check on their kids to make sure they have breakfast, situations where it doesn't make sense to have breakfast (eg, really excessive sleep-ins) now need big reworks to make sure that despite that someone rolls out of bed to have breakfast. The police would roll in and muck up people's life because they skipped breakfast one day due to illness. It'd be a debacle. It is funny to even imagine what mandatory breakfast would look like if we tried to legally enforce it. It would be expensive, both in dollar figures and hours of lives wasted; no question of it. Just because the act itself is cheap and necessary doesn't make legal compliance cheap and easy. There is a huge gap between the everyday "should do" and the legal "must do".

cjalmeida 4y ago
That’s an incredibly bad analogy. A more apt one would be lobbying FAA to give up pilot mandatory rest time for regional jets (eg. ERJs) as “they’d be too expensive compared flying with wide bodies 777”
mym1990 4y ago
The issue is that you think making sure compliance being in place is a "distraction". This is like devs saying writing test classes is a "distraction", or having an infosec team is a "distraction", or having seatbelts in cars is a "distraction".
- roenxi 4y ago
  I feel that is an unfair interpretation because there was one phrase spent on the word "distraction" and then a long paragraph included comparing stress tests to breakfast. If you feel breakfast is unimportant then more power to you I suppose, but I disagree.

jeron 4y ago

>absent regulatory requirements they would perform no risk management. did SVB do any risk management either?

stefan_ 4y ago
They didn't have a Chief Risk Officer for 9 months, just hired one in January.

edgyquant 4y ago

Where did anyone say it was a stress test that was expensive? They literally said “complying with” not “ensuring you’re compliant with”

t-writescode 4y ago
Would you be so kind as to explain the difference in this case and what would make one more expensive than the other?