U.S. Fed to add new elements to bank stress tests - Tarullo

WASHINGTON, June 25 Wed Jun 25, 2014 9:15am EDT

WASHINGTON, June 25 (Reuters) - The U.S. Federal Reserve will continue to add new elements to its annual check-up of the health of banks, Governor Daniel Tarullo said in a speech on Wednesday, to keep up with change in the financial sector.

The Fed might for instance look closer at the risk of common exposures among firms in the annual model run known as 'stress tests', which Tarullo defended as the core element of the Fed's oversight of the banking sector.

"I expect that we will devote more attention to developing the macroprudential elements of the stress tests," Tarullo said in the text of a speech he was due to make in Boston.

Another idea would be to test whether there could be knock-on effects from banks that started rapidly selling assets during a crisis. Another was to see whether banks would still have access to credit in times of stress.

The Fed requires banks to submit capital plans that show what would happen to their finances under adverse economic scenarios, and can stop the banks from raising dividends if it deems the plans insufficient.

This year it rejected plans by Citigroup to buy back $6.4 billion of shares and boost dividends, and also objected to plans from the U.S. units of three European banks: HSBC , RBS and Santander. (Reporting by Douwe Miedema; Editing by Chizu Nomiyama)

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