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The Federal Reserve plans to revamp bank stress tests to standardize changes in capital requirements.
Federal Reserve to revamp Bank stress tests - standardizing fluctuation in capital requirements.December 24, 2024 10:26 JST
Intends to initiate the public comment process in early 2025.
Federal Reserve to average stress test results over two years.
The Federal Reserve Board, targeting large banks, refreshes the stress tests (health checkup) conducted annually. The outline of the proposal was announced on the 23rd, aiming to standardize the fluctuation in capital requirements year by year.
Accordingly, under recession assumptions, estimating losses, incomes, capital levels, etc., and evaluating the recovery capabilities of large banks, the results of the annual stress tests will be averaged over two years. After conducting a public consultation on the annual assumed scenarios, the scenarios will be finalized.
Intends to initiate the public comment process in early 2025.
Federal Reserve to average stress test results over two years.
The Federal Reserve Board, targeting large banks, refreshes the stress tests (health checkup) conducted annually. The outline of the proposal was announced on the 23rd, aiming to standardize the fluctuation in capital requirements year by year.
Accordingly, under recession assumptions, estimating losses, incomes, capital levels, etc., and evaluating the recovery capabilities of large banks, the results of the annual stress tests will be averaged over two years. After conducting a public consultation on the annual assumed scenarios, the scenarios will be finalized.
The Federal Reserve explains in the announcement that "such proposed changes do not have a significant impact on general capital requirements" and are prepared for potential effects of legal environment developments and changes in the administrative law framework.
Federal Reserve and other U.S. financial regulatory authorities are facing pressure from the upcoming Trump administration and demands for regulatory easing from the banking industry. In addition to a significant Supreme Court ruling restricting the government's authority on unclear legal interpretations, banks have argued through lobbying efforts that the Federal Reserve's approach to stress tests is ambiguous.
Federal Reserve and other U.S. financial regulatory authorities are facing pressure from the upcoming Trump administration and demands for regulatory easing from the banking industry. In addition to a significant Supreme Court ruling restricting the government's authority on unclear legal interpretations, banks have argued through lobbying efforts that the Federal Reserve's approach to stress tests is ambiguous.
The Bank Policy Institute (BPI), a industry group based in Washington, welcomes the opportunity to participate in discussions on the refresh of the Federal Reserve's stress tests and announced a plan to propose other improvements.
The Federal Reserve plans to start the process of soliciting opinions on the possibility of revising stress tests in early 2025.
The Federal Reserve plans to start the process of soliciting opinions on the possibility of revising stress tests in early 2025.
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