The Fed plans to finalize two rules covering transparency and the calculation of stress capital buffers.
The Federal Reserve is preparing to overhaul its bank stress testing framework. Fed Governor Michelle Bowman said Friday the changes would make the process more transparent and predictable while reducing swings in the capital requirements imposed on large banks.
The proposed reforms would require the Fed to publish detailed information on stress test models, including their equations, variables, assumptions, limitations and decision-making rationale, as well as more information on how hypothetical scenarios are designed.
The Fed also plans to calculate stress capital buffers using the average results of two consecutive annual stress tests and delay the effective date of the resulting requirement from Oct. 1 to Jan. 1.
Bowman said the approach is expected to reduce stress capital buffer volatility by half without materially changing aggregate capital requirements.
