Fed to give banks more details on stress tests

WASHINGTON: The Federal Reserve will give banks more details on how it conducts annual stress tests, including the qualitative part of the tests, when it publishes the results later this month, Chair Janet Yellen said on Friday in a letter to Congress.

The Federal Reserve will provide specific examples from past years’ problems with banks’ capital planning practices, Yellen said in a letter dated June 16.

The letter was sent to Representative Blaine Luetkemeyer, who chairs a subcommittee overseeing financial institutions on the US House Financial Services Committee.

The Federal Reserve would commit to publishing instructions for the stress tests at the same time as the supervisory scenarios, by Feb ruary 15, said Yellen, whose letter was a response to a May letter from the congressman, who had pressed for additional transparency around the annual stress tests.

Yellen’s response comes after years of wrangling with Wall Street, lawmakers and even a federal watchdog about how transparent the stress tests should be.

Last year, the US Government Accountability Office, a nonpartisan entity that reviews government operations, recommended that the Fed should share more about its process with big banks.

The banks had increasingly complained that stress tests were befuddling.

The Fed has gradually eased off its black-box approach, but regulators maintain stress tests need to have some mystery so that banks cannot undermine the process.