The Federal Reserve is proposing to change how it conducts stress tests for large banks to reduce the volatility of the capital requirements that stem from the tests. The proposal is the first in a series of possible changes stemming from the Fed’s commitment last year to reform how it conducts stress tests.
According to a statement, the Fed is proposing to average stress test results over two consecutive years to reduce the year-over-year changes in the capital requirements that result from the tests. It would delay the annual effective date of the stress capital buffer requirement from Oct. 1 to Jan. 1 of the following year, giving banks additional time to adjust to their new capital requirements. Finally, it would make targeted changes to streamline the Fed’s stress test-related data collection.
The Fed is currently seeking public comment on the tests. The Fed also said that it intends to propose additional changes at a later date to improve the transparency of the stress tests.
