FDIC adopted the final rule to amend its company-run stress testing regulations applicable to state non-member banks and state savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The final rule revises the minimum threshold for applicability from USD 10 billion to USD 250 billion, revises the frequency of required stress tests by FDIC-supervised institutions, and reduces the number of required stress testing scenarios from three to two. The final rule also makes certain conforming and technical changes. The changes impact the FDIC form DFAST 14A (Summary and Scenario sections). The final rule is effective from November 25, 2019.
FDIC, on December 28, 2018, had issued a proposed rule to amend its stress testing requirements, consistent with section 401 of EGRRCP Act. FDIC has received six comments in response to the proposed rule. FDIC is adopting, without change, the proposed revisions to the stress testing rule. Section 401 of EGRRCP Act amended section 165 of the Dodd-Frank Act by raising the minimum asset threshold for banks required to conduct stress tests from USD 10 billion to USD 250 billion. The final rule implements this change by eliminating the two existing subcategories of covered bank—“USD 10 to USD 50 billion covered bank” and “over USD 50 billion covered bank”—and revising the term covered bank to mean a state non-member bank or state savings association with average total consolidated assets that are greater than USD 250 billion.
No FDIC-supervised institutions with total consolidated assets of USD 600 million or less are subject to 12 CFR part 325. Therefore, the final rule would not affect any small, FDIC-supervised institutions. The final rule provides that, in general, an FDIC-supervised institution that is a covered bank as of December 31, 2019, is required to conduct, report, and publish a stress test once every two years, beginning on January 01, 2020. The final rule also adds a new defined term, “reporting year,” to the definitions at 12 CFR 325.2. The reporting year for a covered bank is the year in which a covered bank must conduct, report, and publish its stress test. The “reporting year” for most covered banks would generally be every even-numbered year. The final rule also removes the “adverse” scenario in the FDIC stress testing rule and maintains the requirement to conduct stress tests under the “baseline” and “severely adverse” stress testing scenarios. The final rule amends the definition of “severely adverse scenario” so that the term is defined relative to the “baseline scenario,” rather than relative to the “adverse scenario.”
The final rule revises the transition period in 12 CFR 325.3 to conform to the other changes in this final rule. FDIC may require a covered bank with significant trading activities to include trading and counterparty components in its adverse and severely adverse scenarios. The trading data to be used in this component is as of a date between January 01 and March 01 of a calendar year. FED and OCC extended this range to run from October 01 of the calendar year preceding the year of the stress test to March 01 of the calendar year of the stress test. The final rule adopts the same change to the FDIC stress testing regulation, extending the range of as-of dates from October 01 of the preceding calendar year to March 01 of the calendar year of the stress test. Extending the as-of date range ensures consistency with FED and OCC rules and increases the FDIC flexibility to choose an appropriate as-of date.
Related Link: Federal Register Notice
Effective Date: November 25, 2019
Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, EGRRCP Act, DFAST, Reporting, DFAT 14A, FED, OCC
Previous ArticleESAs Statement on Application of Scope of PRIIPs Regulation to Bonds
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.