Fed Adjusts Policy on Drafting Stress Test Scenarios

WASHINGTON — The Federal Reserve Board on Thursday informed U.S. banks how it plans to craft scenarios for future stress test exercises.

In a 38-page final policy statement, the central bank said it made a number of adjustments to its process based on comments it received from financial firms, trade groups and public interest groups.

The Fed agreed to broaden the information provided in the narrative which is published with macroeconomic scenarios used in the tests. The central bank also added an historical-based approach to the adverse scenario and provided additional information about the process for designing several international variables.

The Fed released instructions to 30 U.S. financial institutions last week for their upcoming annual stress test next year.

The 2014 exercise, building on previous rounds by the central bank, expanded the number of bank holding companies that will be subject to the yearly check-up by regulators to ensure firms would be resilient enough to withstand another stressful economic episode.

"Although the policy statement is not effective until January 1, 2014, the macroeconomic scenarios released last week for the 2014 stress testing exercise are consistent with the policy statement," the Fed said in a release.

Separately, the Fed revised its macroeconomic scenarios for next year's stress test to correct a minor error related to projections of the five-year Treasury yield in the baseline and adverse scenarios. No changes were made to the severely adverse scenario.

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