(Bloomberg) -- The Federal Reserve’s regulation chief defended the agency’s efforts to make its annual big-bank stress tests more transparent, arguing that the goal has never been to make them hard to pass.
Randal Quarles, the central bank’s vice chairman for supervision, used prepared remarks at a Boston conference on stress testing to respond to criticism from Democratic lawmakers and consumer groups that the central bank is revealing the answers to the tests.
“If the goal were only to conduct a test that was difficult to pass -- like the qualifying exams for some of the more esoteric and restrictive high-IQ societies -- then trying to explain principles, scenario design, and how models work would be inappropriate,” Quarles said. “That is not the purpose of stress testing, and it never has been.”
Quarles said in prepared remarks that the Fed is moving ahead with plans to reveal more information about two of its testing models each year until there have been disclosures about all of the models the agency uses. The Fed is also weighing more transparency about its hypothetical stress scenarios that govern each year’s tests, and Quarles said he expects the agency will seek outside input on that idea.
Commenting on what may be the Fed’s most important stress-test change -- the integration of the test results into each big bank’s day-to-day capital requirements through the so-called stress capital buffer -- he said the regulator will move forward with that proposal “in the near future.”
