Federal Reserve Bank of New York Executive Vice President and Director of Research Discusses Supervisory Stress Testing Objectives
Federal Reserve Bank of New York Executive Vice President and Director of Research, Beverly Hirtle, discussed the macroprudential objectives of supervisory stress testing; focusing on structural and cyclical macroprudential considerations. Ms. Hirtle contended that stress testing is a set of microprudential supervisory tools that achieve macroprudential objectives, and that the Comprehensive Capital Analysis and Review program and the Dodd-Frank Act Stress Test are the “most significant and impactful of the many regulatory and supervisory changes implemented following the global financial crisis.” Ms. Hirtle’s remarks compared the current stress testing regime against the Supervisory Capital Assessment Program (SCAP)—the first set of stress tests that were conducted by federal financial regulators. Ms. Hirtle made this comparison against the backdrop of six elements: comprehensiveness; consistency; multiple, independent estimates; diverse perspectives; transparency of process and results; and clear and predictable goals and actions. Overall, Ms. Hirtle suggested that while factors such as the narrowing focus on the most systemically important financial institutions seem consistent with addressing structural macroprudential considerations, the role that cyclical macroprudential considerations serve in the current and evolving stress testing regime is becoming less apparent; arguing that these considerations may be receiving less emphasis given the current economic expansion. Regardless of her observations, however, Ms. Hirtle reiterated that stress testing is vital in ensuring a safe, sound and stable financial system.
View full text of Ms. Hirtle’s remarks.TOPIC: Recovery & Resolution