Fed publishes stress testing rules

The U.S. Federal Reserve is to begin conducting supervisory stress tests this fall for 19 large bank holding companies

By: James Langton
October 9, 2012 October 9, 2012
15:10

U.S. bank regulators Tuesday published final rules setting stress testing requirements for banks, and other critical financial firms, as part of its post-crisis financial sector regulatory reforms known as Dodd-Frank.

The U.S. Federal Reserve Board published two final rules, with stress testing requirements for certain bank holding companies, state banks, and savings and loan holding companies. Additionally, non-bank financial companies that are designated by the Financial Stability Oversight Council will also be subject to certain stress testing requirements contained in the rules.

The Fed is to begin conducting supervisory stress tests under the final rules this fall for the 19 large bank holding companies that participated in 2009 stress tests. The final rules also require these companies and their state bank subsidiaries to conduct their own company-run stress tests this fall, with the results to be publicly disclosed in March 2013.

In general, other companies subject to the rules will be required to comply with the final rule beginning in October 2013. Companies with between $10 billion and $50 billion in total assets that begin conducting their first company-run stress test in in the fall of 2013 will not have to publicly disclose the results of that first stress test.

The Fed indicates that it will release the scenarios for this year’s supervisory and company-run stress tests no later than November 15, which will set out baseline, adverse, and severely adverse scenarios for firms to test against. Today, it also released historical data for variables likely to be used in the scenarios to help banks prepare their estimates.

“Implementation of the Dodd-Frank stress test requirement is an important step in the Federal Reserve’s efforts to promote the health of the financial sector,” said Fed governor, Daniel Tarullo. “Stress testing is a key tool to ensure that financial companies have enough capital to weather a severe economic downturn without posing a risk to their communities, other financial institutions, or to the general economy.”