NEW YORK (Reuters) - The Federal Reserve is considering disclosing more supervisory information, as public disclosure was an important part of the success of last year's bank stress tests, Fed Chairman Ben Bernanke said on Thursday.
The Fed and other bank regulators last year conducted stress tests on the 19 largest U.S. financial firms and disclosed the results, a controversial decision even inside the central bank. The concern was that weaker banks might be harmed by public disclosure of the results.
Traditionally, the view has been that banks are more willing to cooperate with supervisors if they know the findings will be confidential.
Some observers warned last year that "public disclosure of the results might backfire," Bernanke said, according to remarks prepared for delivery to the Federal Reserve Bank of Chicago's annual bank structure and competition conference.
In fact, the stress test exercise helped reduce uncertainty about losses banks were facing, encouraging private capital back into the banks, he said.
"The public disclosure was an important reason for its success," he said.
"In proper context, more information about the status of both the individual banks and of the banking system as a whole should be confidence-enhancing," he said. "We will continue to examine options for increasing the information that supervisors make public."
Fed Governor Daniel Tarullo and Kansas City Federal Reserve Bank President Thomas Hoenig said bank regulators should consider conducting routine, publicly disclosed stress tests.
The 2009 stress tests were a unique exercise in that they took a "horizontal" approach and tested how the banks would fare under uniform assumptions of economic conditions and loss rates.
"Last year's stress assessment was a one-time event in the sense that circumstances may not again call for a simultaneous evaluation of institutions holding two-thirds of the banking systems assets," Bernanke said.
But, he added, the Fed is increasing its use of cross-firm horizontal examinations.
Bernanke said one objective of the stress tests -- speeding up the return to a better lending environment -- has not yet occurred.
While economic activity has "continued to strengthen," Bernanke said, "bank lending continues to contract and terms and conditions remain tight," Bernanke said. He said loan losses at regional and community institutions are likely to remain elevated this year.
The Fed has been taking steps to ensure that its supervisory actions do not "inadvertently impede sound lending," he said.
