It is less than a secret that banks are not the biggest fans of having to run stress tests under the current regulatory guidelines. Still, the great recession was not that long ago and many consumers and businesses are still far from fully recovered. So what happens when you hear that the Federal Reserve Board on Friday may modify its capital planning and stress testing regulations ahead?

The Federal Reserve released on Friday some proposed changes which would take effect for the 2016 capital plan and stress testing cycles. The long and short of the matter is that this looks like it is a one-year pushout for the big banks.

Friday’s Federal Reserve communication said:

The proposed rule would modify the timing for several requirements that have yet to be integrated into the stress testing framework. Banking organizations subject to the supplementary leverage ratio would begin to incorporate that ratio into their stress testing in the 2017 cycle.  The use of advanced approaches risk-weighted assets–which is applicable to banking organizations with more than $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures–in stress testing would be delayed indefinitely, and all banking organizations would continue to use standardized risk-weighted assets.

Banks are currently required to project post-stress regulatory capital ratios in their stress tests. The way it works now is that as the common equity tier 1 capital ratio becomes fully phased in it would generally require more capital than the tier 1 common ratio. The new proposal would remove the requirement that banking organizations calculate a tier 1 common ratio.

This is very technical of course, but the long and short of the matter is that the big banks, the so-called too big to fail banks, might have to keep slightly less in reserves in 2016 than they might have had to keep otherwise. How much that is depends upon which bank you are referring to.

Still, there may be more changes. One has to wonder what the impact is, but not too far out. The Fed further said:

The Board is also currently considering a broad range of issues related to its capital plan and stress testing rules. Any modifications will be undertaken through a separate rulemaking and would take effect no earlier than the 2017 cycle.

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