Federal Reserve Governor Barr calls for decoupling bank capital requirements from stress tests and customizing them individually

Jinse Finance reported that Federal Reserve Governor Barr stated that setting bank capital levels should be separated from the results of stress tests and should be more closely tailored to the individual circumstances of each bank. He is seeking ways to maintain the rigor of the tests amid industry calls for relaxation. Barr opposes increasing the transparency of stress tests in advance and linking them to formulaic capital requirements. He stated that such an outcome could make capital levels "less targeted than they are now and unable to fully reflect the unique business models, risk exposures, and risk profiles of specific companies." Barr believes that regulators should not weaken this process but should maintain the rigor of the tests and, in special cases, use their authority to impose personalized capital requirements based on factors such as a bank's capital structure, risk level, complexity, and financial activities. Stress tests were introduced after the 2008 financial crisis to enhance banks' ability to withstand future economic shocks and to assess how banks would perform in hypothetical economic downturns. Barr has been one of the main supporters of these tests.