The US Federal Reserve has revised its stress testing programme for the large banks in a bid to increase transparency in the process.
The changes in the stress programme will be implemented from this year test cycle.
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US bank stress test changes
The new programme includes providing additional information about the stress testing models used in the annual Comprehensive Capital Analysis and Review (CCAR).
Furthermore, it will offer detailed descriptions of the models used for the test. Information on the performance of hypothetical loans and ranges of loss rates for actual loans will also be provided in subsequent tests.
Overall, it aims to improve public understanding of the bank stress test initiative maintaining an independent assessment of the banks.
The additional information is expected to enable the banks to assess associated risks in its own portfolio. Additionally, they can also compare the losses with the losses from the Federal Reserve models.
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By GlobalDataThe US central bank will update the model disclosures annually and publish them in the first quarter of the respective year.
In a statement, the Federal Reserve added that the board has also modified the scope to design the annual hypothetical economic scenarios.
The modifications will help to accommodate additional information on the hypothetical path of the unemployment rate. It will also incorporate a quantitative guide for the hypothetical path of house prices.
2018 US bank stress test results
In the 2018 stress tests, Federal Reserve found all 35 largest bank holding companies adequately capitalised.
In the most severe scenario involving combined losses of $578bn, the banks were found to remain above the minimum threshold.
