Banks Will Get Glimpse of Future Stress Tests in Tarullo Speech

(Bloomberg) -- Wall Street has been anxious to learn how the Federal Reserve will dial up capital demands through its annual stress tests, and the central bank announced Thursday that the leader of its regulatory efforts will soon address that topic.

Governor Daniel Tarullo, who oversees the Fed’s efforts to supervise and regulate banks, will deliver a Sept. 26 speech entitled “Next Steps in the Evolution of Stress Testing,” according to a schedule posted by the agency. The event is set to take place about four months after he said the largest U.S. banks will have to maintain more capital to survive future stress tests.

Tarullo said in June that the Fed probably will pile on extra capital demands for eight of the biggest U.S. lenders, including JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. The regulator plans to increase the minimum capital targets through surcharges, which increase capital requirements based on each company’s size and complexity. While the banks await word on what likely will be billions of dollars in additional capital, the Fed also said it would give a stress-test break to regional banks by exempting them from a key aspect of the tests.

Eric Kollig, a Fed spokesman, declined to comment further on the speech, set to be delivered at the Yale School of Management in New Haven.

The yearly exercises already represent the highest capital hurdle U.S. banks must clear to show they can survive hypothetical crises devised by the regulators, such as a severe economic downturn. When the stress tests get tougher, Wall Street banks will have a harder time winning the agency’s approval to boost dividends and stock buybacks.

Last month, two Republicans on the House Financial Services Committee -- Representatives Randy Neugebauer of Texas and Robert Pittenger of North Carolina -- sent a letter to Fed Chair Janet Yellen criticizing the addition of a higher capital target for the biggest banks as unnecessary and driven by an interest in forcing the banks to restructure.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net. To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott, Alexis Leondis