Bank regulators are stepping up oversight, however proceed to roll again guidelines which are supposed to stop a repeat of the “too big to fail” disaster that prompted large monetary business bailouts after the Nice Recession.On Thursday, the Federal Reserve accomplished “stress tests” to find out whether or not or not banks may survive a chronic financial downturn — and decided that the pandemic may drive some to the brink in a worst-case state of affairs.The Fed advised banks they aren’t allowed to purchase again their very own stock by means of the third quarter of the yr, and imposed limits on how a lot they’ll pay out in dividends. Additionally on Thursday, the Fed — together with the Workplace of the Comptroller of the Foreign money and Federal Deposit Insurance coverage Company — relaxed the Volcker Rule, a 10-year-old restriction launched within the wake of the monetary disaster that prohibited banks from making sure dangerous funding bets.“I think you’ve seen a greater view of a bank as more of a public utility as opposed to a private investor operation,” stated Charles Elson, director of the Weinberg Middle for Company Governance on the College of Delaware.Elson stated selections about how banks use their cash ought to relaxation with executives and boards. “When you have the threat of failure, people do a better job,” he stated.Let our information meet your inbox. The information and tales that issues, delivered weekday mornings.However others say banks are basically totally different in that they function extra like an important utility — and any breakdown can be catastrophic.“For good or bad, and you have to keep the banks healthy enough play their role.”“Banks are a bit different than normal businesses. The banking sector is special in that it’s providing liquidity to the economy,” stated Bryan Routledge, an affiliate professor of finance at Carnegie Mellon College.The Fed has relied closely on the monetary providers business to hold out the legwork of supporting debtors in the course of the COVID-19 pandemic.“There are very real concerns with regard to bank health in particular, especially the way they’ve been used for some of the lending programs. There are going to be some big write-downs associated with some of that, and the money has to come from somewhere,” stated Joseph Mason, a professor of finance at Louisiana State College.“For good or bad, and you have to keep the banks healthy enough play their role,” Mason said.Bank industry watchdogs, and even some policymakers, have characterized the stress test results as a red flag, saying limits on capital distribution through buybacks and dividends don’t go far enough to ensure that banks are strong enough to withstand a prolonged recession.Watchdog groups also criticized the timing of the Volcker Rule relaxation.“It’s increasingly looking like there will soon be a massive wall of credit defaults, and the Fed is telling banks to take off the seat belts and hit the gas,” stated Tyler Gellasch, govt director of the Wholesome Markets Affiliation.“Regulation is tricky because bankers want the benefit of having that backstop of the Fed, but they also want to make money,” Routledge stated. “So if they take a lot of risk and win, they take big profits, and if they take big risks and lose, taxpayers wind up bailing them out.”Martha C. White is an NBC Information contributor who writes about enterprise, finance and the financial system.