The Federal Reserve is considering changing the annual stress tests it gives to U.S. banks to see if they can withstand a massive financial crisis, and also using test results to set the capital buffers that banks must maintain to blunt the effects of a downturn, according to its chair, Janet Yellen.
In prepared testimony for a House of Representatives Financial Services Committee hearing on Wednesday, Yellen said the Fed is “now considering making several changes to our stress testing methodology and process.”
“The existing capital conservation buffer would be replaced with a risk-sensitive, firm-specific buffer that is sized based on stress test results,” she also said.
For the eight U.S. banks that are large and considered important to the global financial system the new buffer calculation “would result in a significant aggregate increase in capital requirements,” Yellen said.
Yellen did not comment on the outlook for the economy or monetary policy in her prepared remarks.