(Finance) – “Lo stress test (of the banking system, ed.) it must continue to evolve. The introduction of more exploratory scenarios – both for the broader macroeconomic scenario and the global market shock to commercial banks – would be useful for overseeing potential risks on bank balance sheets. He stated it Michael BarrFed Vice Chair for Supervision, at the Federal Reserve’s Stress Test Research Conference in Boston.
“These continued adjustments will help ensure, consistent with the original intent of the Dodd-Frank Act, that stress testing remains a powerful and relevant tool to assess whether big banks are resilient and whether our financial system is sound,” he added.
According to Barr, “exploratory scenarios would also allow the Committee to have greater flexibility in its modeling approaches. For example, the Board could explicitly model depositors’ behavioral response to losses, allowing for contagion of the kind we saw earlier this year, the interaction between the economy as a whole and the banking system under stress, or the transmission of stress through non-bank parts of the banking system”.
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