US Fed floats major changes to bank stress tests in light of legal rulings

Source: Reuters

December 23, 2024 5:06 PM EST Updated 10 hours ago


WASHINGTON, Dec 23 (Reuters) - The U.S. Federal Reserve said on Monday it was considering major changes to its annual bank "stress tests" in light of recent legal developments, including allowing lenders to provide comment on the models it uses, in a major victory for Wall Street banks.

The Fed said it may also allow lenders to provide input on the hypothetical scenarios it uses for the annual bank health checks, and it may also average results over two years to reduce annual volatility in how much capital banks must set aside to absorb potential losses.

Created following the 2007-2009 financial crisis, the tests assess whether big lenders could weather an economic shock. They are core to the U.S. capital regime, dictating how much cash lenders must put aside to absorb losses, and how much they can return to shareholders.

The Fed said the proposed changes were not designed to affect overall capital requirements, but followed recent court rulings that have significantly changed the framework of administrative law in recent years. "The (Fed) Board analyzed the current stress test in view of the evolving legal landscape and determined to modify the test in important respects to improve its resiliency."

Read more: https://www.reuters.com/business/finance/fed-announces-changes-bank-stress-tests-boost-transparency-trim-volatility-2024-12-23/