Given the early state of the art, the SCAP team brought together supervisors, economists, attorneys, accountants, financial analysts, regulatory capital experts and others from the Fed and the other supervisory agencies involved in the program. This kind of multi-disciplinary approach is now embedded in many aspects of supervision, including the LISCC, which includes economists, attorneys and financial market experts, as well as supervisors. The blending of bank-generated and supervisory estimates may be the aspect of the supervisory stress testing regime that has evolved most significantly since the SCAP. Supervisory stress test results are now based on models developed by supervisors that rely on detailed firm-specific data filed through regulatory reports, so the results now represent a fully distinct and independent supervisory view. 4 And, as described above, banks are required to generate their own stress test estimates. Public disclosure of both sets of results based on the common supervisory scenarios has provided diverse perspectives on banks’ capital vulnerabilities. Diverse perspectives, especially those from outside the banking industry and supervisory community, continue to be critical in supporting stress testing’s macroprudential objectives. Academic economists can play an especially important role in helping to foster innovation and creativity by advancing thinking on stress test scenario design and on modeling techniques that better capture the impact of the external environment on bank financial condition. A particularly ripe area for fresh thought, in my view, concerns modeling revenues and non-credit expenses— so-called pre-provision net revenue, or PPNR—an area that is notoriously difficult to assess.

The Fed discloses descriptive information about the models, including the general statistical approach and key variables, but does not release the code or detailed equation estimates. Industry groups and individual banks have called for the Fed to release more detail about its models, including the specific formulas and equations.5 On one level, full disclosure of the Fed’s supervisory stress test models might seem like good public policy. Such disclosures would provide insight into how the stress test calculations are made, making the results predictable to the banks subject to the tests. Greater predictability of the stress test results could enhance banks’ ability to do capital planning, because any constraints arising from the supervisory stress test results would be known ex ante. Detailed 4/6  BIS central bankers' speeches  disclosures could also enhance the credibility of the stress test regime by allowing external parties to critique the Fed’s models, a form of “peer review” that could lead to improved modeling techniques or identify areas of emerging risk that the Fed’s models do not adequately capture. But these benefits could come at significant cost to the broader goals of the supervisory stress testing regime. My co-author, Til Schuermann, has argued that increased reliance on supervisory models, especially in the context of the CCAR program, provides powerful incentives for banks to abandon innovation in stress test modeling and instead devote their energy to mimicking the Fed’s models.