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    OCC Revises Minimum Threshold for Banks to Conduct Stress Tests

    October 10, 2019

    OCC issued the final rule that amends its company-run stress testing requirements under the 12 CFR 46 in Code of Federal Regulations. The final rule revises the minimum threshold for national banks and federal savings associations to conduct stress tests to USD 250 billion; revises the frequency by which certain national banks and federal savings associations are required to conduct stress tests; reduces the number of required stress testing scenarios from three to two; and makes certain additional technical changes to the stress testing requirements. The increase in the applicability threshold effected by this final rule will reduce the estimated number of respondents for these requirements to 8 (4 for biennial testing and 4 for annual testing). The final rule will be effective from November 24, 2019.

    This final rule implements the stress testing requirements of section 165(i)(2) of the Dodd-Frank Act, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The final rule:

    • Raises the minimum asset threshold for banks required to conduct stress tests from USD 10 billion to USD 250 billion. This is done by eliminating the two existing subcategories of “covered institution”—USD 10 to USD 50 billion covered institution”and USD 50 billion or over covered institution—and revising the term “covered institution” to mean a national bank or federal savings associations with average total consolidated assets greater than USD 250 billion. The final rule also makes certain technical changes to the rule to consolidate requirements that were applied differently to USD 10 to USD 50 billion covered institutions and USD 50 billion or over covered institutions.
    • Requires that, in general, a covered institution will be required to conduct, report, and publish a stress test once every two years, beginning on January 01, 2020, and continuing every even-numbered year thereafter (that is, 2022, 2024, 2026, and so on). However, a covered institution that is consolidated under a holding company that is required to conduct a stress test at least once every calendar year will be required to conduct, report, and publish its stress test annually. 
    • Removes references to the “adverse” stress test scenario in the OCC stress testing rule. In the OCC experience, the “adverse” stress-testing scenario has provided limited incremental information to the OCC and market participants beyond what the “baseline” and “severely adverse” stress testing scenarios provide. Therefore, the final rule maintains the requirement for OCC to conduct supervisory stress tests under both a “baseline” and “severely adverse” stress-testing scenario.
    • Revises requirements for a transition period between when a bank becomes a covered institution and when the bank must report the results of its first stress test. A bank that becomes a covered institution will be required to conduct its first stress test under the stress testing rule in the first reporting year that begins more than three calendar quarters after the date the bank becomes a covered institution. The final rule does not include a transition period for a covered institution that moves from a biennial stress testing requirement to an annual stress testing requirement. Accordingly, a covered institution that becomes an annual stress testing covered institution is required to begin stress testing annually as of the next reporting year.
    • Revises the frequency of the requirement for the board of directors to review and approve the covered institution’s stress testing policies and procedures from “annual” to “once every reporting year” to align review by the board of directors with the covered institution’s stress testing cycle.
    • Clarifies OCC’s reservation of authority by providing that OCC may exempt a covered institution from the requirement to conduct a stress test in a particular reporting year.
    • Removes certain transition language that was present in the stress testing rule and that is no longer current.

    The final rule imposes no additional reporting, disclosure, or other requirements on insured depository institutions, including small depository institutions, nor on the customers of depository institutions. In addition, the final rule decreases the frequency of these reporting, recordkeeping, and disclosure requirements for some institutions to once every other year.


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    Effective Date: November 24, 2019

    Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, EGRRCPA Act, Minimum Threshold, OCC

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