Fed's Potential Overhaul of Bank 'Stress Tests' Sparks Regulatory Debate

The U.S. Federal Reserve is contemplating significant modifications to its bank 'stress tests', a move seen as advantageous for Wall Street. This follows recent legal developments and aims to incorporate lender input on models and scenarios used for tests, without altering overall capital requirements.


Devdiscourse News Desk | Updated: 24-12-2024 02:52 IST | Created: 24-12-2024 02:52 IST
Fed's Potential Overhaul of Bank 'Stress Tests' Sparks Regulatory Debate
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The U.S. Federal Reserve announced on Monday its consideration of major revisions to the annual bank 'stress tests'. These changes are a response to recent legal rulings and would allow banks to comment on the test models and scenarios – a significant win for Wall Street institutions.

Previously established post-2007-2009 financial crisis, these stress tests are critical to the U.S. capital structure, dictating how much capital banks need for loss absorption and shareholder returns. The Fed emphasized that these proposed changes wouldn't impact the broader capital requirements following court decisions that have altered administrative law frameworks.

The Supreme Court's recent decision overruled the Chevron precedent, affecting regulatory deference. Despite the Dodd-Frank law mandating balance sheet tests, the specific capital directives arising from these tests aren't legally required.

(With inputs from agencies.)

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