Bloomberg News

Fed’s Dudley Says Stress Tests Should ‘Be Severe to Be Credible’

June 27, 2011

June 27 (Bloomberg) -- Federal Reserve Bank of New York President William C. Dudley said so-called bank stress tests must use scenarios that are “severe” in order to be “credible,” and disclosure of the results must be “sufficiently granular” so that they can be readily analyzed.

U.S. regulators have found stress-tests “useful in identifying best practices and to determine where particular banks were deficient,” Dudley said in the text of remarks delivered in Bern, Switzerland on May 28, which were released today. He said his remarks were intended to be “of interest” to European regulators.

The results of the stress tests must also be “credible in terms of expected losses,” and “there needs to be a credible capital backstop so that market participants can be sure banks will be able to raise the capital that they need under a stress environment,” he said.

--Editors: James Tyson,

To contact the reporter on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net


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