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Fed to Require More Stringent Bank Stress Tests

November 2, 2013
Fed to Require More Stringent Bank Stress Tests

The U.S. Federal Reserve said Friday it will ramp up the so-called stress tests that it mandates for the country's largest financial firms.

Addressing concerns that banks are relying on short-term lending and derivatives, the Fed said it will require the banks it tests to demonstrate how these operations would fare under economic stress. The banks will need to show they can survive the collapse of a major counter-party, such as another bank with which their fates are intertwined.

In addition, the Fed will ask banks to put their operations through a hypothetical global recession, The Wall Street Journal reported.

"The capital planning and stress-testing program has been an integral component of the Federal Reserve's broader supervisory and regulatory efforts to make the financial system stronger and safer since the financial crisis," Fed Gov. Daniel Tarullo said in a statement.

The Journal said the Fed planned to turn on the heat, asking banks to demonstrate they could withstand the stress of unemployment at 11.25 percent, a 25 percent decline in housing prices and a drop in the gross domestic product of nearly 5 percent.

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Original headline: Fed to ramp up bank stress tests

Source: UPI Business News

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