Tarullo on Changing Post Stress Test Capital Requirements

The transcript discusses changes to the stress test system for banks, focusing on increasing capital requirements for the eight largest US institutions. This includes maintaining minimum capital levels and adding a capital surcharge. The aim is to enhance resilience against systemic risks, especially for large banks. The discussion also covers the need to account for unknown risks and the timing of implementing these changes, with a phased approach being considered.

What is the primary focus of the changes in post-stress capital requirements for banks?

• Reducing the number of stress tests conducted annually

• Increasing the capital levels for the eight largest US institutions

• Introducing new stress scenarios for all banks

• Eliminating capital surcharges for smaller banks

Why is it important for the largest banks to have higher capital surcharges?

• To reduce their market share

• To comply with international regulations

• To mitigate systemic risk due to their size

• To ensure they can absorb losses from smaller banks

What is a key reason for adjusting the stress test process?

• To align with international banking standards

• To account for unknown risks and ensure flexibility

• To decrease the frequency of stress tests

• To simplify the capital requirement calculations

How will the new capital surcharge requirements be implemented?

• Retroactively applied to past stress tests

• Gradually, with a potential phase-in period

• Only for new banks entering the market

• Immediately, with no transition period

What is the expected timing for the new requirements to take effect?

• In time for the next stress test round

• After a decision is made and a proposal is issued

• Immediately, as they have already been decided

• Only after international approval