A group of banks, including the American Bankers Association, the Clearing House Association, and the Bank Policy Institute, have petitioned the US Federal Reserve to provide more transparency in the capital planning and stress testing processes. The banks are seeking to know more about the Fed’s models, methodologies, and assumptions used in the stress tests, as well as the level of detail provided in the results.
According to the petition, the lack of transparency in the stress tests has created uncertainty and inconsistency in the regulatory environment, making it challenging for banks to plan and manage their capital. The banks are also concerned that the stress tests are too narrow, focusing primarily on credit risk, and do not adequately address other types of risk, such as operational risk and interest rate risk.
The banks are seeking increased transparency in the following areas: 1) disclosure of the Fed’s stress testing models and methodologies, 2) more detailed results provided to banks, and 3) regular updates on changes to the stress testing framework. The banks believe that increased transparency will help to reduce uncertainty, improve the regulation’s effectiveness, and promote the stability of the financial system.