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
FI Proposes Approach to Assess Pillar 2 Guidance for Swedish BanksRelated Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
