Fed finalizes bank 'stress test' overhaul
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FILE PHOTO: A man walks past the Federal Reserve in Washington, December 16, 2015. REUTERS/Kevin Lamarque/File Photo/File Photo
By Pete Schroeder
WASHINGTON, Sept 30 (Reuters) - The U.S. Federal Reserve announced Wednesday it had finalized changes to its annual "stress test" of large bank finances to make the exams more transparent and less volatile.
The revamped test largely mirrors changes proposed by the central bank one year ago, in response to years of industry complaints the tests, which help set how much capital large lenders must set aside against potential losses, were opaque and subjective.
Under the revamped exams, the Fed will garner public feedback on any major changes to the test's models and the hypothetical economic downturns the Fed constructs to search for weaknesses. Banks will also see their "stress capital buffer," which is a capital layer based on how well each firm performs on the test, set as an average of its last two results to make the requirement less volatile.
The Fed said the changes are likely to reduce year-over-year volatility in capital requirements by 50%, while not materially affecting aggregate bank capital levels.
(Reporting by Pete Schroeder; Editing by Andrew Heavens)
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