Fed reform stress testing will publish confidential model and economic scenario design process

The US Federal Reserve on Friday unveiled sweeping changes to the annual "stress testing" of big banks. Under proposals to be voted on by the Fed's board of governors later in the day, banks would be given more information about how stress testing works, including the publication of previously confidential models for comment and the process of designing the hypothetical recession scenarios on which stress testing is based each year. Bowman, the Fed's vice-chairperson of regulation, said the change would bring a long-lost level of transparency to stress testing. However, Mr. Barr, the Fed governor, strongly opposed the change, saying that making too many details of the test public would make it "weaker and less credible". Mr. Barr warned that banks would be able to fine-tune their books to pass the test with the minimum capital required to protect against potential losses. The Fed board is expected to move forward with the proposal, which will be finalized next year after public comment.