On January 19, 2018, the Committee submitted a comment letter to the Federal Reserve (the “Fed”) in response to the Fed’s proposals requesting public input on its proposed efforts to increase the transparency surrounding the scenarios and models used in the Fed’s annual supervisory stress tests of certain large financial institutions.
The letter commended the Fed for making efforts to increase transparency. However, the letter expressed concern that the Fed’s proposals will not result in the full public disclosure of the Fed’s scenarios or models, and that the public will not be provided an opportunity to comment on the scenarios and models each year before they are finalized and applied in the stress tests. The Committee noted that the absence of a public notice and comment process means that the development of the scenarios and models remains susceptible to legal challenge under the Administrative Procedure Act. The letter recommended that the Fed subject its annually developed scenarios to public notice and comment, and that the Fed should provide a more thorough public analysis about whether the risks of full disclosure of its models outweigh the potential benefits of complete transparency. The comment letter also communicated the Committee’s belief that the Fed should make only marginal changes to the scenarios from any prior year’s stress test, and the Fed should consider having bank developed models play a greater role in the Fed’s stress testing analyses rather than relying exclusively on its own models.
The letter is available here.