Featured Product

    FHFA Proposes to Amend Stress Testing Rule

    December 16, 2019

    FHFA is proposing amendments to the stress testing rule for the entities it regulates. The proposed rule would revise the minimum threshold for the regulated entities to conduct stress tests from USD 10 billion to USD 250 billion. Additionally, the proposed rule would remove the requirements for Federal Home Loan Banks subject to stress testing and remove the adverse scenario from the list of required scenarios. These amendments align the FHFA rule with rules adopted by other financial institution regulators that implement the Dodd-Frank Act stress testing requirements, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The proposed rule also makes certain conforming and technical changes. Comments must be received by January 15, 2020.

    The following are the key proposed amendments to the stress testing rule: 

    • Minimum Asset Threshold. Section 401 of the EGRRCP Act amended section 165 of the Dodd-Frank Act by raising the minimum threshold for financial companies required to conduct stress tests from USD 10 billion to USD 250 billion. As there are no Federal Home Loan Banks with consolidated assets of over USD 250 billion, these banks will no longer be subject to the stress testing requirements of this rule. Though each of the Federal Home Loan Banks has total consolidated assets of less than USD 250 billion, the rule expressly maintains the Director's discretion to require any regulated entity with assets below the USD 250 billion threshold to conduct the stress test. 
    • Frequency of Stress Testing. Section 401 of the EGRRCP Act also revised the requirement under section 165 of the Dodd-Frank Act for financial companies to conduct stress tests, changing the required frequency from “annual” to “periodic.” The term periodic is not defined in EGRRCP Act. Because of the Enterprises' total consolidated asset amounts, their function in the mortgage market, the size of their retained portfolios, and their share of the mortgage securitization market, FHFA proposes to require the Enterprises to conduct stress tests on an annual basis. 
    • Removal of the “Adverse” Scenario. Section 401 of EGRRCP Act amended section 165(i) of the Dodd-Frank Act to no longer require the Board to include an “adverse” stress-testing scenario, reducing the number of stress test scenarios from three to two. The “baseline” scenario contains a set of conditions that affect the U.S. economy or the financial condition of the regulated entities and that reflect the consensus views of the economic and financial outlook. Additionally, the “severely adverse” scenario contains a more severe set of conditions and the most stringent of the former three scenarios. Although the “adverse” scenario has provided some additional value in limited circumstances, the “baseline” and “severely adverse” scenarios largely cover the full range of expected and stressful conditions. Therefore, FHFA does not consider it necessary, for its supervisory purposes, to require the additional burden of analyzing an “adverse” scenario.

     

    Related Link: Federal Register Notice

    Comment Due Date: January 15, 2020

    Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, Minimum Asset Threshold, EGRRCP Act, Baseline Scenario, Severely Adverse Scenario, FHFA

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697