The Fed Just Made Stress Tests Harder for Big Banks
By John Heltman
WASHINGTON — The Federal Reserve Board is contemplating a sweeping new vision of the future of the central bank’s hallmark supervisory stress testing program — a vision that involves major concessions to midsize regionals and puts added pressure of the largest and most systemically risky banks. In a speech Monday, Fed Gov. Daniel Tarullo said the Fed plans to drop the qualitative assessment for most banks with assets of more than $250 billion but incorporate the entirety of the Fed’s surcharge for global systemically important banks into the capital minimums that banks have to retain….  Karen Shaw Petrou, managing partner at Federal Financial Analytics, said the proposals — most of which would not take effect until 2018 at the earliest — are the culmination of a series of rules that the Fed has either adopted or proposed that penalize the biggest banks. She likened the rules to running hurdles in track and field, except each subsequent hurdle is even higher than the last. “The number of hurdles over which they have to jump is increasingly higher,” Petrou said. “It’s a towering pyramid of increasingly binding constrains the bigger you are.”…In addition to putting greater onus on the biggest banks, the measures also give a boost to midsized regional banks with limited international exposure. Petrou said the exemption of banks with between $50 billion and $250 billion from the qualitative CCAR examinations is a major benefit, since most of them handily pass the quantitative requirements and the change “gives them a far better chance of passing the test.”