Fed’s Powell Signals More ‘Transparency’ in Stress Tests

The Federal Reserve will work in the coming months to provide greater transparency into the stress testing process, Governor Jerome Powell said today in an interview on CNBC. “We’re working on something…in the coming months which will provide much more granular information about our expectations for loss rates on particular portfolios, of corporate loans and other kinds of loans,” he said. “We’ll also provide more guidance, when we announce the results on June 22…on how we think about the qualitative requirement. And we’re going to seek comment from the public on how we go about providing more transparency.”

ABA EVP Wayne Abernathy welcomed Powell’s remarks. “The idea of providing greater transparency on how the tests treat certain kinds of loans is consistent with recommendations ABA made in our recent white paper to Treasury as well as in our conversations with the Fed over the years,” he said. “There is a growing consensus, among regulators and the regulated, about the value of stress testing, so efforts to refine the tests to make them even more valuable for supervision and management is a welcome step.”

The Fed today announced its schedule for stress test results. The Fed will release results of the Dodd-Frank Act-mandated stress tests on June 22, and will release the results of the Comprehensive Capital Analysis and Review process for larger and internationally active bank holding companies on June 28. Company-run stress tests results will be available on or before July 7.

Powell also said that with the bulk of post-crisis rulemaking completed, it is time to revisit how new regulations are working. “I think it’s our obligation now…to ask what aspects of it may be redundant or inefficient, or utterly essential and should be protected down to every letter,” he commented. “But there are going to be some adjustments and I think that’s only appropriate. Much of this new stuff was novel and it would be very surprising if we got it all exactly right the first time.”

He added that the Fed is rethinking the way its supervision affects bank directors. “We’re going to move to a more principles-based approach and we’re going to eliminate many of the really specific directives that we give to boards of directors,” he explained. “We want directors to focus on their main job of overseeing and holding accountable the management, not running the company and not getting tied up in a lot of checklists.”