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Tuesday, April 10, 2012

Developing Tools for Dynamic Capital Supervision

Federal Reserve Governor Daniel Tarullo gave a speech this morning to the Federal Reserve Bank of Chicago's Annual Risk Conference regarding dynamic capital supervision. In his speech, Tarullo recognized the domestic and international initiatives to strengthen standards for the quantity and quality of capital held by banking organizations but warned these stronger standards “must be complemented with supervisory tools that incorporate dynamic, macro prudential elements,” such as the Federal Reserve’s stress testing and firm-specific capital planning tools.

Tarull made clear the one-size-fits-all approach “is no more appropriate here than in most other areas of prudential supervision,” and called for supervisory stress testing requirements to focus on the specific, sophisticated character of the institution being assessed.

Tarull noted he does not expect any kind of supervisory stress testing requirements for banks with assets of $10 billion or less and "quite different" stress testing requirements to be used for banks with consolidated assets of between $10 and $50 billion.

Read Tarull’s full speech.

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