FED Proposes to Amend Capital Planning and Stress Testing Requirements
FED published a proposal to update the capital planning requirements to reflect the new framework from last year that sorts large banks into different categories based on their risks, with rules 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 company-run stress test requirements and this proposal reflects those changes. The proposal would make conforming changes to the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to Category IV standards to be consistent with the tailoring framework. FED also proposes to revise capital assessments and stress testing reports (FR Y-14 report), and reporting, recordkeeping, and disclosure requirements associated with Regulation YY (FR YY) to reflect the changes in the proposed rule. Comments must be received by November 20, 2020.
For firms subject to Category IV standards, to align the capital plan rule requirements with the tailoring rule changes, this proposal would
- remove the capital plan rule requirement to calculate forward-looking projections of capital under scenarios provided by FED.
- update the frequency, to every other year, of calculating the portion of the stress capital buffer that is calculated as the decline in the common equity tier (CET) 1 ratio; these firms would be required to submit a capital plan to FED annually but would generally no longer be required to calculate the estimates of projected revenues, losses, reserves, and pro forma capital levels (effectively a form of stress testing) using scenarios provided by FED.
- no longer require firms to submit to FED the forward-looking projections in granular form prescribed by the regulatory report FR Y-14A, Schedule A—Summary.
To be consistent with the recent changes to the stress testing rules of FED, the proposal would make other changes to the stress testing rules, Stress Testing Policy Statement, and regulatory reporting requirements for business plan change assumptions, capital action assumptions, and the publication of company-run stress test results for savings and loan holding companies. The proposal would update the FR Y-14 reporting requirements for firms subject to Category I to IV standards to conform with changes made to the stress test rules. The notice also solicits comment on the guidance on capital planning for all firms supervised by FED, in light of the recent changes to relevant regulations and as part of FED’s ongoing practice of reviewing its policies to ensure that they are having their intended effect.
Due to the continued economic uncertainty from COVID-19 response, FED announced that it will extend, for an additional quarter, several measures to ensure that large banks maintain a high level of capital resilience. Thus, for the fourth quarter of this year also, large banks—those with more than USD 100 billion in total assets—will be prohibited from making share repurchases. Additionally, dividend payments will be capped and tied to a formula based on the recent income. Later this year, FED will conduct a second stress test to further test the resilience of large banks and will release the results of this test by the end of the year.
Related Links
Comment Due Date: November 20, 2020
Keywords: Americas, US, Banking, COVID-19, Stress Testing, 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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
FASB Decides to Delay Implementation of LDTI Standard for InsurersNext Article
NBB Maintains Countercyclical Capital Buffer at 0%Related Articles
BIS Paper Studies Impact of Fintech Lending on Small Businesses in US
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
EBA Launches EU-Wide Transparency Exercise in 2022
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
EC Rule Lists Advanced Economies for Market Risk Capital Calculations
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
