Dodd-Frank stress tests could destabilise market

Author: | Published: 26 Jan 2012

Financial institutions could face tight disclosure deadlines and market overreactions over publicly disclosed summaries of financial data following the release of proposed stress testing rules mandated by Section 165 of Dodd-Frank.

Industry associations believe that while stress testing incentivises holding more capital and deleveraging in risky assets, financial markets could become less stable following public releases of stress test summaries.

“There’s always a concern that you create a self fulfilling prophecy that the average investor doesn’t place results in context,” Scott Talbott, senior vice president of government affairs at The Financial...