Federal Reserve Governor Barr calls for banks to decouple capital requirements from stress testing and personalize them

Mr. Barr, the Fed governor, said setting bank capital levels should be separated from the results of stress testing and more closely tailored to the banks' own conditions. He is looking for ways to maintain the rigour of the tests in the face of industry calls for them to be loosened. Mr. Barr opposed making stress testing more transparent and tied to formulaic capital requirements ahead of time. Such an outcome, he said, could leave capital levels "less targeted and less reflective of a particular company's unique business model, risk exposure and risk profile". Barr argued that regulators should not weaken the process, but should maintain the rigor of the tests and use their authority in exceptional cases to impose individualized capital requirements based on factors such as a bank's capital structure, level of risk, complexity and financial activity. Stress testing was introduced after the 2008 financial crisis to strengthen banks' resilience to future economic shocks and to assess how well they would perform in a hypothetical economic downturn. Barr has been one of the main proponents of these tests.