Big Banks' Stress Level is Rising -- Heard On The Street

By John Carney 

        Big banks scored a minor regulatory victory Monday. But this may be overshadowed by comments from Federal Reserve officials indicating that annual stress tests could become even more stringent.
        The win came in the form of a change to the way the Fed will calculate a capital surcharge it applies to global systemically important banks. The central bank on Monday finalized rules related to this.
        As originally proposed, the size of the surcharge would have been determined based on a measure of each bank's systemic importance relative to other global banks. This made individual surcharges somewhat unpredictable; they would depend not just on a bank's own actions but those of others, too. So, a bank seeking to reduce its surcharge by shrinking could be stymied if other banks took the same tact.
        That wasn't what the Fed wanted. Discussing the new rules, Chairwoman Janet Yellen said the goal was to force banks either to shrink or to hold substantially more capital.
        The revised rule uses a fixed measure of systemic importance. That should make the surcharge more predictable.
        Even so, Daniel Tarullo, the Fed's point person on bank regulation, said regulators are still considering "whether and, if so, how to incorporate the surcharges" into minimum capital levels required by annual stress tests. Doing so would substantially raise the bar for banks looking to return capital to shareholders. Mr. Tarullo went on to say that even if the surcharges aren't explicitly included in the tests, Fed staff was considering other ways to make the exams better at addressing systemic risk.
        So it seems likely that, one way or another, stress tests are going to get tougher for the largest U.S. banks.
        (END) Dow Jones Newswires

        July 20, 2015 17:04 ET (21:04 GMT)

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