The Federal Reserve Board ("FRB") (i) finalized enhanced disclosure of the models used in the agency's supervisory stress tests, (ii) altered its policy regarding the scenario design framework and (iii) adopted a policy statement on prior disclosures. The changes are intended to increase the transparency of the stress testing program for the nation's largest and most complex banks.

The FRB finalized enhanced disclosure of the models used in the agency's supervisory stress tests conducted under Regulation YY. The final enhanced disclosures consist of three components: (i) "enhanced descriptions of supervisory models, including key variables," (ii) "modeled loss rates on loans" grouped by critical risk characteristics and summary statistics related to loans in each group, and (iii) portfolios of hypothetical loans and the estimated loss rates linked with the loans in each specific portfolio. The FRB stated that it will provide further information on a number of other models, including models used to project pre-provision net revenue and operational-risk losses.

The FRB adopted amendments to its policy statement regarding the scenario design framework for stress testing. As previously covered, these modifications are intended to "enhance the counter-cyclicality and transparency" of the scenario design framework. The FRB also adopted the proposed guide for the hypothetical path of house prices under the severely adverse scenario.

The FRB adopted a stress test policy statement, which explains the agency's approach to model development, implementation and validation. Further, the statement outlines seven principles that have served as a guide for supervisory stress test modeling.

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