Fed Starts New Era in Bank Stress Tests

Emphasis on Transparency and Accountability from the Federal Reserve

The Federal Reserve (Fed) announced that it will prepare new regulations to increase transparency and accountability in its annual stress tests for large banks. This step is considered a critical development aimed at maintaining the robustness of the financial system.

Statements from Fed Chairman Jerome Powell

Fed Chairman Jerome Powell stated during the Board of Governors meeting that the financial system continues to remain resilient, explaining how these stress tests contribute to strengthening banks' risk management capabilities. Powell emphasized that stress tests have been a fundamental part of the Fed's oversight program since 2009.

New Proposals and Public Opinion

Powell noted that among the proposed changes are modifications in the design of stress test models and hypothetical scenarios. In this context, it was announced that public opinions will be sought regarding the stress test scenarios for 2024.

Strengthening Transparency and Security

The Fed's Vice Chair for Supervision Michelle Bowman stated that the lack of transparency and accountability in the stress testing processes will be addressed. These changes will help banks understand their capital requirements, strengthen market discipline, and reinforce overall confidence.

Contrary Opinions and New Scenarios

Fed Board Member Michael Barr opposed the proposed regulations, arguing that the models to be disclosed to the public would weaken the testing processes. Additionally, the Fed announced its scenarios for 2026, which forecast a global recession, a decline in risky asset prices, and an increase in unemployment in the US to 10%.