Featured Product

    FHFA Proposes to Amend Stress Testing Rule

    December 16, 2019

    FHFA is proposing amendments to the stress testing rule for the entities it regulates. The proposed rule would revise the minimum threshold for the regulated entities to conduct stress tests from USD 10 billion to USD 250 billion. Additionally, the proposed rule would remove the requirements for Federal Home Loan Banks subject to stress testing and remove the adverse scenario from the list of required scenarios. These amendments align the FHFA rule with rules adopted by other financial institution regulators that implement the Dodd-Frank Act stress testing requirements, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The proposed rule also makes certain conforming and technical changes. Comments must be received by January 15, 2020.

    The following are the key proposed amendments to the stress testing rule: 

    • Minimum Asset Threshold. Section 401 of the EGRRCP Act amended section 165 of the Dodd-Frank Act by raising the minimum threshold for financial companies required to conduct stress tests from USD 10 billion to USD 250 billion. As there are no Federal Home Loan Banks with consolidated assets of over USD 250 billion, these banks will no longer be subject to the stress testing requirements of this rule. Though each of the Federal Home Loan Banks has total consolidated assets of less than USD 250 billion, the rule expressly maintains the Director's discretion to require any regulated entity with assets below the USD 250 billion threshold to conduct the stress test. 
    • Frequency of Stress Testing. Section 401 of the EGRRCP Act also revised the requirement under section 165 of the Dodd-Frank Act for financial companies to conduct stress tests, changing the required frequency from “annual” to “periodic.” The term periodic is not defined in EGRRCP Act. Because of the Enterprises' total consolidated asset amounts, their function in the mortgage market, the size of their retained portfolios, and their share of the mortgage securitization market, FHFA proposes to require the Enterprises to conduct stress tests on an annual basis. 
    • Removal of the “Adverse” Scenario. Section 401 of EGRRCP Act amended section 165(i) of the Dodd-Frank Act to no longer require the Board to include an “adverse” stress-testing scenario, reducing the number of stress test scenarios from three to two. The “baseline” scenario contains a set of conditions that affect the U.S. economy or the financial condition of the regulated entities and that reflect the consensus views of the economic and financial outlook. Additionally, the “severely adverse” scenario contains a more severe set of conditions and the most stringent of the former three scenarios. Although the “adverse” scenario has provided some additional value in limited circumstances, the “baseline” and “severely adverse” scenarios largely cover the full range of expected and stressful conditions. Therefore, FHFA does not consider it necessary, for its supervisory purposes, to require the additional burden of analyzing an “adverse” scenario.


    Related Link: Federal Register Notice

    Comment Due Date: January 15, 2020

    Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, Minimum Asset Threshold, EGRRCP Act, Baseline Scenario, Severely Adverse Scenario, FHFA

    Featured Experts
    Related Articles

    BIS Paper Studies Impact of Fintech Lending on Small Businesses in US

    The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.

    September 26, 2022 WebPage Regulatory News

    UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks

    The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).

    September 26, 2022 WebPage Regulatory News

    EBA Launches EU-Wide Transparency Exercise in 2022

    The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.

    September 23, 2022 WebPage Regulatory News

    SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks

    The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."

    September 22, 2022 WebPage Regulatory News

    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.

    September 21, 2022 WebPage Regulatory News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8521