Fed to ease stress test requirements for smaller banks

Fed to ease stress test requirements for smaller banks
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The Federal Reserve will require major U.S. banks to bolster their capital and allow smaller lenders to skip a key part of regular stress testing.

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The central bank will require large lenders like Bank of America, JPMorgan Chase, Wells Fargo and Citigroup to build up capital buffers to protect themselves and the financial system from another crisis, Federal Reserve Board Governor Daniel Tarullo said Monday.

“Supervisory stress testing has become a cornerstone of post-crisis prudential regulation,” Tarullo said in a speech at Yale University. “Financial regulation should be progressively more stringent for firms of greater importance.”

Tarullo also said banks with less than $250 billion in assets would be exempt from a portion of a stress test that gauges the standards and practices that lenders use to prepare for a crisis.

“Many of these firms have already met supervisory expectations,” said Tarullo. “We do not intend for less complex firms to invest in stress testing capabilities on par with the most complex firms and, given their profile, we feel these firms can maintain the progress they have made.”

Stress tests have been a cornerstone of post-recession financial regulation. They gauge a bank’s preparedness and ability to handle economic downswings and crises. 

Large, systemically important financial institutions — often called “too big to fail” — are also required to submit yearly resolution plans. These detail how the bank would sell off assets and downsize without triggering a crisis.