FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new tailoring framework from 2019; this framework sorts large banks into categories, with requirements 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 the company-run stress test requirements. The final rule modifies the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to “Category IV” standards under the tailoring framework. The final rule impacts capital assessments and stress testing reports (FR Y-14), along with the reporting, recordkeeping, and disclosure requirements associated with Regulation YY (FR YY). The final rule will become effective on April 05, 2021. FED also posted the draft reporting forms and instructions for FR Y-14 data collection.
FED issued the proposal to update capital planning requirements in October 2020. In a change from the proposal, the final rule applies capital planning requirements to large savings and loan holding companies that are not predominantly engaged in insurance or commercial activities. For firms subject to the Category IV standards, to align the capital plan rule requirements with the tailoring rule changes, the final rule:
- removes the requirement to provide projections in a firm’s capital plan under the supervisory scenarios and the requirement to submit FR Y-14A schedules associated with company-run stress test results.
- replaces the use of “large and noncomplex bank holding company” with the definition of a firm subject to Category IV standards.
- requires the stress test portion of the stress capital buffer requirement to be updated in a manner consistent with the frequency of the supervisory stress test. The final rule allows such a firm to elect to opt-in to a stress test in a year in which the firm would not generally be subject to the supervisory stress test and to receive an updated stress capital buffer requirement in that year.
To maintain consistency with the recent changes to the stress testing rules of FED, the final rule makes other changes to the stress testing rules of FED, Stress Testing Policy Statement, and regulatory reporting requirements; these changes relate to the assumptions for business plan changes and capital actions and the publication of company-run stress test results for savings and loan holding companies. The final rule also applies the capital planning and stress capital buffer requirements to covered saving and loan holding companies subject to Category II, Category III, and Category IV standards under the tailoring framework.
Related Links
Effective Date: April 05, 2021
Keywords: Americas, US, Banking, Stress Testing, Regulatory Capital, 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.
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.
Previous Article
ECB Updates FAQs on COVID-19 Measures, Amends Decision on TLTRO IIIRelated 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.
