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Fed's Powell looks to boost stress test transparency
June 1, 2017 / 3:05 PM / 6 months ago

Fed's Powell looks to boost stress test transparency

(Reuters) - Federal Reserve Governor Jerome Powell said Thursday that the Fed will announce some changes to its bank stress tests when it announces the latest results on June 22.

Federal Reserve Governor Jerome Powell delivers remarks during a conference at the Brookings Institution in Washington August 3, 2015. REUTERS/Carlos Barria

Powell, who heads the Fed’s committee on supervision and regulation, said on CNBC that the Fed is hoping to give banks more information which would help them predict how they would perform on the test, and ease some of its current requirements.

“We’re committed to running as transparent as possible, and effective as possible, a set of stress tests,” he said.

Specifically, Powell said the Fed is working on “much more granular” information for banks about how the Fed’s model that tests bank portfolios treats certain types of corporate loans. That data will be made available in the coming months.

Banks have complained the current testing process is too opaque, and want to see the precise model the Fed uses. But the central bank has resisted that request out of concern it would encourage banks to fine-tune their operations to pass the test rather than build the overall strength of their portfolios.

Powell also said the Fed will have more information when the 2017 test results are announced about the “qualitative” component of the stress test, which allows the Fed to reject bank capital plans due to risk concerns even if banks have sufficient capital. The Fed agreed to exempt banks with less than $250 billion in assets from that component during the 2017 test cycle, and Powell has suggested removing it altogether form the test in the past.

Reporting by Pete Schroeder; Editing by Jonathan Oatis

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