Yellen Signals Greater Transparency in Stress Tests

In a letter to Rep. Blaine Luetkemeyer (R-Mo.) last week, Federal Reserve Chair Janet Yellen said that the Fed will provide banks with more details on the stress testing process in response to calls from lawmakers and others -- including ABA -- for greater transparency. The results of this year’s stress tests -- which include the Dodd-Frank Act stress tests and the Comprehensive Capital Analysis and Review -- will be published this month.

Along with the results, the Fed will release information on how it approaches the qualitative assessment and offer specific examples of how institutions in the past failed to meet financial stability requirements, Yellen said. In a letter last month, Luetkemeyer and Keith Rothfus (R-Pa.) noted that the Fed’s opacity about the stress testing process forces institutions to overspend and invest excess time in developing models and tests and that the Fed could do more to increase public awareness of what goes into its scenario design for the capital planning exercise. Yellen added that the Fed will release instructions and scenarios for the next testing cycle by Feb. 15.

ABA has strongly advocated with regulators and on Capitol Hill for improvements to CCAR and DFAST that will promote efficiency for participating banks without sacrificing contributions to financial stability.