Central Banks

Friday, January 17, 2020 - 12:45

MNI POLICY: Quarles: Give Banks More Time to Study Stress Test

By Jean Yung

WASHINGTON (MNI) - Federal Reserve Governor Randy Quarles on Friday laid out proposals to increase transparency in how the Fed supervises banks, including giving them more time to review their stress test results and seeking public and Congressional input on the Fed's supervisory guidance.

The Fed Board could provide more transparency on the design of its stress test, make their requirements less "volatile" from year-to-year and allow firms more time to review their results, Quarles said in remarks prepared for an American Bar Association meeting in Washington.

"The goal here is not to make the tests less strenuous but to give banks a greater opportunity to plan for them and to meet our expectations ex ante rather than through an ex post remedial process," he said.

"I expect that as part of the stress capital buffer, we will give banks significantly more time to review their stress test results and understand their capital requirements before we demand their final capital plan," he said.

"We continue to look for ways to reduce the volatility of stress-test requirements from year to year," he said. "We are considering a number of options, such as averaging outcomes over multiple years or averaging the results of the current year's stress test with the results of one or more previous years."

Regulatory interpretations by Fed supervision staff have "grown piecemeal over the decades" and should be collated into one place, with significant guidance inviting public comment and possibly even seeking Congressional approval, Quarles said.

"I don't believe the Federal Reserve has communicated as clearly as it could with the banks we supervise," Quarles said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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