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.”
Fed asks banks to suggest ways to include new accounting rule into stress tests
10 July 2018 9:59pm