The Fed voted 4-1 to ease restrictions on buybacks and dividends it had imposed to ensure banks preserved capital amid the coronavirus pandemic.
The regulator is seeking to “ensure large banks remain resilient despite the economic uncertainty" from the coronavirus pandemic.
The new buffer will use the results from the Fed's stress tests to help determine banks' capital requirements.
The 2020 tests will give the Fed "increased information on how leveraged loans and collateralized loan obligations may respond to a recession."
The elimination of the "qualitative" portion of the annual tests eases some of the post-crisis regulatory burden on banks.
Regulators are seeking to give banks more information about the testing process without enabling them to game the system.
The answer is unequivocally no, according to noted bond analyst Christopher Whalen, who calls them "a monumental waste of time and money."
Capital plans will be approved or disapproved next week.
A watchdog says the Fed needs to disclose more about how it assesses whether banks would maintain sufficient capital in a future crisis.
Financial industry leaders say the tests may violate a law requiring transparency in government rulemaking.
The banks' projected capital cushions in the event of a severe recession all exceeded the Fed's minimum requirements.
“The process of maturation that makes stress test results more predictable may also make the stress tests less effective," say two researchers.
