Federal Reserve Gov. Daniel Tarullo met last week in New York with the CEOs of the systemically important financial institutions that came under the Fed’s recent stress tests. The backdrop to the meeting was Tarullo’s refusal to make the parameters of the models used in these stress tests public, or at least known in more granular detail so that financial institutions can compare their results with their models.
Fed officials fear that more transparency would allow banks to “game” the system, shaping their portfolios to score better on the Fed’s models. Other items were on the agenda including the Fed’s proposal to prohibit any SIFI from having exposure to any counterparty that exceeds more than 10% of its regulatory capital.