Transparency and Model Evolution in Stress Testing

Bank stress tests must be revisable in order to cope with new, emerging risks in the financial sector. Some of these revisions will likely involve model parameters, in addition to the macro-variable shocks that have been applied heretofore. The potential for such revisions would be handicapped by making the test models fully transparent to the public. This tension makes it inadvisable to share model parameters widely if the stress tests are to remain an informative component of the supervisory system for large banks.