MNI: Regulators Consider Bolstering Fed Stress Tests - Barr
Fed Vice Chair for Supervision highlights nonbank risks to financial stability.
Federal Reserve Vice Chair for Supervision Michael Barr on Thursday said regulators are evaluating whether the supervisory stress test that is used to set capital requirements for large banks reflects an appropriately wide range of risks.
"We are considering the potential for stress testing to be a tool to explore different sources of financial stress and uncover channels for contagion that lead to unanticipated consequences," Barr said in a speech at the American Enterprise Institute.
"Using multiple scenarios or adapting the stress test in other ways to better account for the high degree of interconnectedness between banks and other financial entities could allow supervisors and banks to identify those conditions and take action to address them."
HOLISTIC REVIEW
Regulators' holistic review of capital standards is still underway, Barr said in prepared remarks, adding he has no firm conclusions to announce yet and hopes to have more to say about it early next year. The Fed vice chair in his debut speech in September outlined an ambitious agenda that could spell a shake-up for big lenders which previously enjoyed a lighter touch.
On Thursday, Barr highlighted bank interactions with the nonbank sector and potential risks. "We need to worry, a lot, about nonbank risks to financial stability," he said. Barr's remarks did not touch on monetary policy.
The Global Financial Crisis "laid bare the weakness of nonbank intermediation, and the need to regulate risks outside the banking system," he said. "Many of those risks remain today."