FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new tailoring framework from 2019; this framework sorts large banks into categories, with requirements that are tailored to the risks of each category. Firms in the lowest risk category are on a two-year stress test cycle and not subject to the company-run stress test requirements. The final rule modifies the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to “Category IV” standards under the tailoring framework. The final rule impacts capital assessments and stress testing reports (FR Y-14), along with the reporting, recordkeeping, and disclosure requirements associated with Regulation YY (FR YY). The final rule will become effective on April 05, 2021. FED also posted the draft reporting forms and instructions for FR Y-14 data collection.
FED issued the proposal to update capital planning requirements in October 2020. In a change from the proposal, the final rule applies capital planning requirements to large savings and loan holding companies that are not predominantly engaged in insurance or commercial activities. For firms subject to the Category IV standards, to align the capital plan rule requirements with the tailoring rule changes, the final rule:
- removes the requirement to provide projections in a firm’s capital plan under the supervisory scenarios and the requirement to submit FR Y-14A schedules associated with company-run stress test results.
- replaces the use of “large and noncomplex bank holding company” with the definition of a firm subject to Category IV standards.
- requires the stress test portion of the stress capital buffer requirement to be updated in a manner consistent with the frequency of the supervisory stress test. The final rule allows such a firm to elect to opt-in to a stress test in a year in which the firm would not generally be subject to the supervisory stress test and to receive an updated stress capital buffer requirement in that year.
To maintain consistency with the recent changes to the stress testing rules of FED, the final rule makes other changes to the stress testing rules of FED, Stress Testing Policy Statement, and regulatory reporting requirements; these changes relate to the assumptions for business plan changes and capital actions and the publication of company-run stress test results for savings and loan holding companies. The final rule also applies the capital planning and stress capital buffer requirements to covered saving and loan holding companies subject to Category II, Category III, and Category IV standards under the tailoring framework.
Related Links
Effective Date: April 05, 2021
Keywords: Americas, US, Banking, Stress Testing, Regulatory Capital, Capital Plan Rule, FR Y-14, Reporting, Regulation YY, Basel, FED
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
Previous Article
ECB Updates FAQs on COVID-19 Measures, Amends Decision on TLTRO IIIRelated Articles
PRA and FPC Finalize Changes to Leverage Ratio Framework in UK
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
CFPB Proposes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
PRA Decides to Maintain O-SII Buffers for Another Year
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
FSB Report Assesses Implementation of Recommendations on Stablecoins
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
APRA Updates Loan Serviceability Expectations for Home Lending
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
EBA and EIOPA Set Out Work Priorities for 2022
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
MFSA Issues Reporting Updates and Guidance for Banks
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
EC Publishes Decision on List of Equivalent Third Countries Under CRR
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC Rule on Contractual Recognition of Write-Down and Conversion Powers
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
