This month, the Committee on Capital Market Regulation (CCMR) published a paper criticizing the procedures the Federal Reserve uses in conducting its stress tests. The claim is that, in its annual Comprehensive Capital Analysis and Review (CCAR), the Fed is violating the Administrative Procedures Act of 1946 (APA). The CCMR’s proposed solution is more transparency. As big fans of both stress tests and transparency in general, and of the CCAR in particular, we find this legal challenge very troubling.

We believe that making the stress tests more transparent in the ways that the CCMR suggests would make them much less effective. This would do serious damage to financial stability policy and (ultimately) increase the likelihood of another crisis...