(Bloomberg) -- The US Federal Reserve will overhaul its stress tests of big US banks to smooth out changes in required capital levels from year to year under a proposal outlined by the central bank on Monday.
Results from the annual health check-up, which seek to gauge how lenders would fare during a hypothetical recession, would be averaged over two years, and the central bank would solicit public comment on the hypothetical scenarios each year before they’re finalized, the Fed said in its release.
“These proposed changes are not designed to materially affect overall capital requirements,” the release added.
The move comes as the Fed braces for potential impacts of an evolving legal landscape and changes in the framework of administrative law, it said.
US agencies are facing pressure from the incoming Trump administration and bankers to regulate with a lighter touch. Earlier this year, the Supreme Court sharply curtailed the power of the executive branch to interpret unclear laws, and the bank lobby had long argued that the Fed’s approach to stress testing was opaque.
The Washington-based Bank Policy Institute said in a statement it welcomed the opportunity to weigh in on the Fed’s changes and planned to suggest other improvements.
The regulator intends to begin the public comment process on potential changes to the stress test during the early part of 2025.
(Adds reaction and details, beginning in fourth paragraph.)
©2024 Bloomberg L.P.