| NEW YORK, June 11
NEW YORK, June 11 The U.S. Federal Reserve wants
banks to get something out of their annual stress tests beyond
just ticking the box of regulatory compliance, but few banks
actually do, according to a survey to be released later this
Moody's Analytics polled 32 chief risk officers and others
who took part in the stress tests this year, or may be required
to participate next year. All said they used the results for
"regulatory compliance," but when it came to business decisions
the numbers were much lower.
"The banks pretty universally say they want to get more out
of stress testing," said David Little, a managing director at
Moody's Analytics. "They're spending a ton of money and the
return-on-investment isn't there if they're just using it for
There are two parts to U.S. stress tests, one called "DFAST"
that is required by the Dodd-Frank financial reform law, and
another called "CCAR," which approves or rejects plans to use
capital for dividends, share repurchases or investments.
Of 18 banks surveyed that participate in CCAR, only eight
said the results factor into financial planning, budgeting and
strategy. None said the results affected pricing. Of another 14
banks that only participate in DFAST, fewer than half said it
affected planning or budgeting, and only two said it affected
The stress tests measure how banks would fare under
hypothetical scenarios of market and economic turmoil. They may
become more important as the Fed emphasizes stress test results
over a global set of capital rules known as Basel III.
The Fed wants stress tests to influence the way banks go
about day-to-day business, said Little, who has hosted
roundtables of bankers and regulators to discuss the stress
test. But that is not yet happening because banks are
ill-equipped to collect and analyze data across their businesses
in the way the Fed requires.
As a result, regulatory stress tests take three or four
months to conduct, compared with just a day to run an internal
test on the way a currency fluctuation or interest rate move
would affect profits, Little said.
"Banks know the models the Fed wants them to run are very
good," he said. "It's a good approach; it's just a very
Banks are devoting more resources to technology and models
to streamline the process, Little said. JPMorgan Chase & Co
, for instance, says it has 500 employees devoted to
stress tests and thousands of additional staff peripherally
Some are also working to improve results after embarrassing
failures or mistakes. The Fed rejected Citigroup Inc's
capital plan this year, citing weaknesses in loss projections,
and Bank of America Corp uncovered a $4 billion error in
its stress-test calculations. JPMorgan and Goldman Sachs Group
Inc had to resubmit capital plans last year because the
Fed took issue with their planning processes.
(Editing by Chizu Nomiyama)