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Capital Buffers and the Future of Bank Stress Tests

Author

Listed:
  • Jill Cetina

    (Office of Financial Research)

  • Bert Loudis

    (Office of Financial Research)

  • Charles Taylor

    (Office of Financial Research)

Abstract

The Basel III banking accord introduced the concept of capital buffers -- extra capital cushions on top of regulatory capital minimums -- to absorb unexpected shocks. These buffer requirements are now phasing in for U.S. banks. Federal Reserve officials are considering including these buffers in bank stress tests. With such a change, some banks will need to hold more capital to pass stress tests. However, another potential change would permit banks to use static balance sheets (that is, balance sheets unchanged from the prior period) in stress tests, which could make the tests less effective.

Suggested Citation

  • Jill Cetina & Bert Loudis & Charles Taylor, 2017. "Capital Buffers and the Future of Bank Stress Tests," Briefs 17-02, Office of Financial Research, US Department of the Treasury.
    • Handle: RePEc:ofr:briefs:17-02
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    File URL: https://www.financialresearch.gov/briefs/files/OFRbr_2017_02_Capital-Buffers.pdf
    File Function: First version, 2017
    Download Restriction: no
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    Cited by:

    1. Hałaj, Grzegorz, 2018. "System-wide implications of funding risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 1151-1181.
    2. Hałaj, Grzegorz, 2018. "Agent-based model of system-wide implications of funding risk," Working Paper Series 2121, European Central Bank.

    More about this item

    Keywords

    Basel III; stress tests; regulatory capital minimums; CCAR; static balance sheets;
    All these keywords.

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