The Federal Reserve today released for comment several proposals that together attempt to bring more transparency to stress testing exercises—a long-standing priority for the American Bankers Association. Comments are due Jan. 22, 2018.
Among the proposals is an enhanced disclosure of the models used by the Fed to estimate hypothetical losses in the stress tests (including the Comprehensive Capital Analysis and Review process); a stress testing policy statement outlining the Fed’s approach to model development, implementation, use and validation; and changes to the Fed’s framework for designing economic scenarios. Federal Reserve Vice Chairman for Supervision Randal Quarles noted that “this enhanced transparency will bolster the credibility of our stress tests and help the public better evaluate the results.”
ABA has long called for greater clarity and transparency around the stress testing process. Earlier this year, the association pointed out in a white paper to the Treasury Department that under the current framework, bankers are left to manage, price and allocate capital without a fully informed view of regulatory expectations, which can ultimately harm borrowers. For more information, or to join ABA’s working group providing comment on the proposal, contact ABA’s Hugh Carney.