July 17, 2015 / 6:01 PM / 4 years ago

Fed proposes tweaks to stress test rules for banks

The sun rises to the east of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) - The U.S. Federal Reserve on Friday proposed a rule to make changes to its annual exam of the financial health of the banks it oversees, the so-called stress tests.

Banks that are subject to the supplementary leverage ratio - a hard cap on how much they can borrow - would need to incorporate the ratio into their 2017 stress tests.

The Fed also proposed that banks would continue to use standard models to measure risk on their books and would not be allowed to use models they have developed themselves, a practice that is known as the “advanced approach.”

If adopted, the rules would take effect for next year’s exam, in which banks are run through a model simulation of a severe economic shock to see if they are resilient enough.

Reporting by Douwe Miedema; Editing by Bill Trott

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