Stress Testing Convergence

German Gutierrez (), Til Schuermann and Michael Duane
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Michael Duane: Oliver Wyman

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: Increasingly aggressive capital management: Banks initially responded to CCAR by maintaining wide capital cushions vs. regulatory minimums. However, as CCAR processes stabilize and capital minimums increase, some institutions appear to be managing capital more and more tightly, especially investment banks, universals and custodians. Drivers of enhanced financial resource management: What allows institutions to manage capital more closely? First, stress test results are beginning to stabilize and, in some cases, converge. Second, although we have just a handful of examples, the market seems to reward aggressive capital requests, even if they are, at first, rejected by the Fed. Unintended consequences: As stress test results converge and institutions begin to manage capital to Fed-projected results, the Fed?s stress testing models become an increasingly important driver of the fate of the financial system.

JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba and nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: Stress testing convergence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:15-11

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