OCC Releases Dodd Frank Act Stress Test Scenarios for 2020
OCC released economic and financial market scenarios for use in the upcoming stress tests for covered institutions. The supervisory scenarios include baseline and severely adverse scenarios, as described in the final rule that implements stress test requirements of the Dodd-Frank Act. The covered institutions are required to complete the DFAST reporting templates using financial information as of December 31 each year. The covered institutions must publish a summary of results of the annual stress test between June 15 and July 15.
The baseline and severely adverse scenarios start in the first quarter of 2020 and extend through the first quarter of 2023. Each scenario includes 28 variables; this set of variables is the same as the set provided in the supervisory scenarios last year. This year’s global market shock for the severely adverse scenario emphasizes a heightened stress to highly leveraged markets that causes CLOs and private equity investments to experience larger market value declines relative to 2019. For DFAST 2020, banks that are completing the global market shock must incorporate a counterparty default scenario component in the severely adverse scenario. The counterparty default scenario component involves the instantaneous and unexpected default of the bank’s largest counterparty. The largest counterparty of each bank will be determined by net stressed losses.
Section 165(i)(2) of the Dodd-Frank Act requires certain financial companies, including certain national banks and federal savings associations, to conduct annual stress tests. Unless OCC determines otherwise, if the covered institution is a consolidated subsidiary of a bank holding company or savings and loan holding company subject to the supervisory stress tests conducted by FED, then within the June 15 to July 15 period such covered institution may not publish the required summary of its annual stress test earlier than the date on which FED publishes the supervisory stress test results of the covered bank's parent holding company. The objective of the annual company-run stress test is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. OCC intends to use the data to assess the reasonableness of stress test results and determine whether additional analytical techniques are needed to identify, measure, and monitor risk.
Related Links
Keywords: Americas, US, Banking, Stress Testing, DFAST 14A, Reporting, Baseline Scenario, Severely Adverse Scenario, Capital Adequacy, DFAST, FED
Featured Experts
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.
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous Article
EC Amends Regulation on Single Electronic Reporting Format in EURelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.