Fed finalizes bank 'stress test' overhaul
XLF•The Federal Reserve finalized changes to its annual stress test for large banks, including averaging each bank’s last two results to set its stress capital buffer. The Fed said the changes are likely to reduce year-over-year volatility in capital requirements by 50% without materially affecting aggregate bank capital levels.
1. Changes to stress tests
The Federal Reserve finalized changes to its annual test of large-bank finances, aiming to make the exams more transparent and less volatile. The tests help determine how much capital large lenders must set aside against potential losses.
2. More input, steadier buffers
The Fed will seek public feedback on major changes to its test models and hypothetical downturn scenarios. Each bank’s stress capital buffer will be based on the average of its last two test results. The Fed said the changes are likely to reduce year-over-year volatility in capital requirements by 50%, while not materially affecting aggregate bank capital levels.
