Wall Street lenders are one step closer to applying more relaxed capital requirements related to the Federal Reserve's stress tests. As US regulators continue to relax capital regulations, large banks are expected to profit again. Michelle Bauman, the Federal Reserve's vice chairman in charge of regulatory affairs, said in a speech preparing for an event in London on Friday that the final revisions to the Fed's stress test may respond to concerns about risk sensitivity and what risks the test covers. “These revisions will improve transparency and public accountability, enhance the reliability and accuracy of the model, and reduce the volatility of capital requirements resulting from annual stress testing results,” Bauman said. She also said that the Federal Reserve is expected to consider making final revisions to the stress testing framework “in the next few weeks.” The Federal Reserve's revisions may include most of the elements in the previous proposal, but Bauman said that before voting on the final rules, she will consider the banking industry's feedback on the stress test plan. Specifically, she mentioned one of the banking industry's requirements to “set a clear date to lock in the company's balance sheet before the proposed scenario is announced” to address concerns about risk sensitivity. Another requirement is to include two global market shock scenarios based on the same date to improve risk coverage. Bowman also expects that by the end of the year, another set of capital rules will be completed, including a plan to reduce additional capital requirements for America's largest banks and adjust risk-based capital requirements for large and small banks.

Wall Street lenders are one step closer to applying more relaxed capital requirements related to the Federal Reserve's stress tests. As US regulators continue to relax capital regulations, large banks are expected to profit again. Michelle Bauman, the Federal Reserve's vice chairman in charge of regulatory affairs, said in a speech preparing for an event in London on Friday that the final revisions to the Fed's stress test may respond to concerns about risk sensitivity and what risks the test covers. “These revisions will improve transparency and public accountability, enhance the reliability and accuracy of the model, and reduce the volatility of capital requirements resulting from annual stress testing results,” Bauman said. She also said that the Federal Reserve is expected to consider making final revisions to the stress testing framework “in the next few weeks.” The Federal Reserve's revisions may include most of the elements in the previous proposal, but Bauman said that before voting on the final rules, she will consider the banking industry's feedback on the stress test plan. Specifically, she mentioned one of the banking industry's requirements to “set a clear date to lock in the company's balance sheet before the proposed scenario is announced” to address concerns about risk sensitivity. Another requirement is to include two global market shock scenarios based on the same date to improve risk coverage. Bowman also expects that by the end of the year, another set of capital rules will be completed, including a plan to reduce additional capital requirements for America's largest banks and adjust risk-based capital requirements for large and small banks.