Fed asks banks to suggest ways to include new accounting rule into stress tests

10 July 2018 9:59pm
The US Federal Reserve has asked industry to propose ways to incorporate a major new accounting standard into stress tests to avoid inflating capital losses in the annual exercises, according to an industry document.

A Fed advisory panel, whose members include Bank of America Chief Executive Brian Moynihan and Citigroup Chief Executive Michael Corbat, has expressed concern about the upcoming impact of the credit-loss standard adopted in the wake of the financial crisis.

The accounting rule “could amplify losses and, in all likelihood, bring losses forward” on stress tests, panel members said in a document posted after a recent meeting with the Fed.

The executives asked that stress tests be adjusted to include the new standard “in a manner that promotes transparency and comparability, represents firm-specific credit risk, and is consistent with how the allowance would work in an actual stressed environment.”