WASHINGTON—The Federal Reserve on Friday unveiled plans to overhaul its annual bank stress tests following a lawsuit from Wall Street trade groups challenging how the regulator determines capital levels for large banks.
The proposal would make the process less burdensome for the biggest institutions by publishing and seeking public feedback on the models and scenarios used to gauge their resilience the Financial Times explained.
The Fed said the changes are aimed at improving transparency and accountability while maintaining the tests’ effectiveness in assessing risk. It estimated the revisions would have only a negligible effect on overall capital requirements.
Industry groups, including the Financial Services Forum and the Bank Policy Institute, endorsed the move. But the decision divided the Fed’s board: Michael Barr opposed the plan, warning it could weaken the credibility of the tests, while Michelle Bowman supported the changes and said they were long overdue, the Financial Times noted.