Fed to give banks more details about stress tests

The Federal Reserve will give banks more information about how it conducts stress tests after mounting complaints about the central bank’s secrecy, Reuters reported Friday. 

Fed Board Chairwoman Janet Yellen wrote in a letter to lawmakers that the Fed will provide more details on how it judges how prepared banks are to withstand major financial crises. The Fed will offer specific examples of how banks have previously failed to meet stability requirements when it releases the results of recent stress tests later this month.

Yellen’s letter was a response to Rep. Blaine Luetkemeyer (R-Mo.), chairman of the House Financial Services Committee’s subcommittee on financial institutions and consumer credit. Luetkemeyer wrote to Yellen in May, asking the Fed for more stress test transparency.

{mosads}The Fed and the financial sector have fought for years over the central bank’s stress test secrecy. The Fed has long insisted that revealing details about the stress test process, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, could allow banks to manipulate the results.

Banks and industry defenders counter that more details would give major financial firms a chance to tailor their operations to meet federal standards before the Fed issues a judgment.