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.
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Effective Date: April 05, 2021
Keywords: Americas, US, Banking, Stress Testing, Regulatory Capital, Capital Plan Rule, FR Y-14, Reporting, Regulation YY, Basel, FED
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