FED published a document providing additional information on its stress testing program. This additional information follows the finalized changes, which were published in February 2019 and intended to enhance the transparency of its stress tests without compromising the ability to test the resilience of the largest banks in the nation. The document provides details about the models developed or selected by FED for use in the supervisory stress test.
Additional information on loss rates is provided for the models used for corporate loans and credit cards. These two models accounted for roughly half of the total projected loan losses in the 2018 stress test of FED. Similar information will be provided in 2020 for two additional models. The additional information consists of the following:
- Ranges of loss rates, projected using the models of FED for loans that are grouped by distinct risk characteristics
- Portfolios of hypothetical loans with loss rates projected by the models of FED
- Enhanced descriptions of the models of FED
The document provides an overview of the general approach to supervisory model development and validation in stress testing, also summarizing the supervisory modeling framework and methodology. The document includes detailed description of the supervisory stress test models and contains additional disclosures for certain material portfolios, including modeled loss rates on pools of loans and loss rates associated with portfolios of hypothetical loans. Finally, Appendix A to the document describes a comprehensive list of supervisory model changes effective for Dodd-Frank Act Stress Test (DFAST) in 2019.
Keywords: Americas, US, Banking, Stress-Testing, DFAST, Stress Test Models, CCAR, FED
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