Stress Testing Accountability and Transparency Act
The Stress Testing Accountability and Transparency Act would require the Federal Reserve to codify and publicly disclose the methodologies, models, assumptions, and scenarios used in the stress testing framework for bank holding companies’ stress capital buffer (SCB). It also mandates advance, rule-based planning for stress tests and limits changes to those rules through standard notice-and-comment rulemaking. Additionally, the bill prohibits climate-related stress testing of nonbank financial companies under the Fed’s authority and establishes a regular GAO review to assess the effectiveness of stress tests on the safety and soundness of institutions and the stability of the U.S. financial system. In short, the bill aims to increase transparency and accountability in the Federal Reserve’s stress testing processes, while imposing procedural constraints and periodic evaluative reporting on how stress tests are designed and applied.
Key Points
- 1Within 90 days of enactment, the Fed must issue a rule establishing all models, assumptions, formulas, and other methodologies used to determine any component or subcomponent of the stress capital buffer for bank holding companies; any future changes must go through notice-and-comment rulemaking.
- 2The rule must prevent double-counting of capital requirements for the same risks in the stress capital buffer and in risk-based capital requirements.
- 3The term “stress capital buffer requirement” is defined by reference to the existing regulatory standard in 12 CFR 225.8(d).
- 4Beginning in the first calendar year after enactment, the Fed must publish, at least 30 days before any stress test under section 165(i) of the Financial Stability Act of 2010, a rule establishing each scenario to be used in that stress test.
- 5The bill prohibits the Fed from applying climate-related stress tests to nonbank financial companies under 165(i) authority, and requires GAO to conduct triennial evaluations of the stress tests’ effectiveness for safety and soundness and for U.S. financial system stability.