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Comment by zainhoda | Hacker News Reader

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.

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> 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.

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.”

“do nothing and keep the money.” That's the best definition of deregulation I've seen.

Don't forget, receive bailouts if you go bust.

> “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”.

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.

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.

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".

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”

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".

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.

You're comparing breakfast to regulatory compliance for the financial system. Just think about that for a second...

Breakfast represents something like 10-30% of of a person's caloric intake, it is much more important than regulatory compliance in the financial system. We could adjust to poor compliance relatively easily (we did without formal compliance regimes for centuries). You seem to be underestimating breakfast.

This is part of why I like the analogy; something being important is different from whether it is a legal necessity. Making it a legal necessity is what brings in the complaints about costs, not the cost of doing the thing itself. The cost is in proving compliance under all possible conditions. The complying act, as the thread ancestor I first replied to noted, is often cheap and generally already done as good practice.

Any analogy comparing requirements for a corporation with a human being is always going to sound ridiculous because you are comparing a legal entity with a person.

A government is formed by people, not corporations.

Corporations exist inside of a space governments specifically carve out for them.

The mantra that corporations are people is political ideology.

>absent regulatory requirements they would perform no risk management.

did SVB do any risk management either?

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

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

Would you be so kind as to explain the difference in this case and what would make one more expensive than the other?

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.

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