On February 23, ISDA, the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the Securities Industry and Financial Markets Association and the US Chamber of Commerce jointly responded to the US Federal Reserve’s consultation on the stress testing framework. The associations welcomed the Federal Reserve’s proposal to open its stress testing framework to public comment, which is a meaningful step toward greater transparency and objectivity. In the joint comment letter, the associations noted that the proposal reflects serious efforts to improve the plausibility of stress scenarios and the risk sensitivity of the models, consistent with statutory requirements.
The associations encourage the Federal Reserve to build on this progress by making further changes to better align capital requirements with underlying risk. Key recommendations include considering stress tests within the broader capital framework, proposing all model changes for public comment, retaining the year‑end ‘jump‑off’ date to reduce volatility and operational burden, and codifying important reforms in regulation rather than relying on discretionary guidance.
The letter also urges enhancements to the Federal Reserve’s models and scenarios to improve risk sensitivity and transparency, including reducing over‑aggregation, recognizing hedging effects, avoiding double counting and strengthening governance on key modeling choices. The associations emphasized that a more transparent, risk‑sensitive stress testing regime would support more rational capital allocation, customer choice and US economic growth.
Documents (1) for Joint Association Response to FRB Consultation on Stress Testing Framework
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