Quarles Outlines Changes to Expect in Stress Testing Framework

As the Federal Reserve works on finalizing its “stress capital buffer” proposal and makes continued refinements to the overall stress testing and capital planning regime, Vice Chairman for Supervision Randal Quarles today outlined several areas where the Fed governors are working to refine the process — many of which align with recommendations made by the American Bankers Association.

Specifically, the Fed is seeking to calibrate the SCB to minimize the volatility that stress tests introduce in capital planning while preserving the “dynamism” of stress testing, he said. He added that he advocated for removing the leverage buffer from the SCB proposal. Both of these were advocated by ABA in its comment letter. Quarles added that he expects the Fed to disclose more details about supervisory stress test models and results “starting in early 2019” and would propose further transparency measures, also a policy goal urged by ABA.

With the SCB proposal set to end the “pass or fail” aspect of the Comprehensive Capital Analysis and Review process, Quarles added that “the time has come to normalize the CCAR qualitative assessment by removing the public objection tool, and continuing to evaluate firms’ stress testing practices through normal supervision.” For more information, contact ABA’s Hugh Carney.