Fed offers more details on stress test models

WASHINGTON — The Federal Reserve released 80 pages of additional information on its stress testing program Thursday in an effort to provide more transparency into how it grades large banks for capital adequacy.

In February, the Fed announced changes to the Comprehensive Capital Analysis and Review, which included exempting most regional banks from the 2019 cycle and finalizing a series of changes intended to offer more transparency without compromising the “ability to test the resiliency of the nation’s largest banks.”

The supplemental document released by the Fed Thursday includes more than 30 tables and “provides significantly more information on the stress test models that are used to project bank losses, compared to disclosures from past years,” the Fed said in a press release.

The new information disclosed to the public includes ranges of loss rates for loans that are grouped by separate risk characteristics, portfolios of hypothetical loans with loss rates projected by the regulator’s models as well as enhanced descriptions of the Fed’s models.

“Since the inception of the supervisory stress test, the Board of Governors of the Federal Reserve System has gradually increased the breadth of its public disclosures, which allows the public to evaluate the fundamental soundness of the supervisory stress test and can increase public and market confidence in the results of the assessment,” the new report says.

The agency’s board of governors had unanimously adopted changes to the stress test cycles, including the release of additional information, after they were proposed in December 2017.