Capital Buffers and the Future of Bank Stress Tests

Jill Cetina (), Bert Loudis () and Charles Taylor
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Jill Cetina: Office of Financial Research
Bert Loudis: Office of Financial Research
Charles Taylor: Office of Financial Research

No 17-02, Briefs from Office of Financial Research, US Department of the Treasury

Abstract: The Basel III banking accord introduced the concept of capital buffers -- extra capital cushions on top of regulatory capital minimums -- to absorb unexpected shocks. These buffer requirements are now phasing in for U.S. banks. Federal Reserve officials are considering including these buffers in bank stress tests. With such a change, some banks will need to hold more capital to pass stress tests. However, another potential change would permit banks to use static balance sheets (that is, balance sheets unchanged from the prior period) in stress tests, which could make the tests less effective.

Keywords: Basel III; stress tests; regulatory capital minimums; CCAR; static balance sheets (search for similar items in EconPapers)
Pages: 8 pages
Date: 2017-02-07
New Economics Papers: this item is included in nep-ban
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