OCC released economic and financial market scenarios for use in the upcoming stress tests for covered institutions. The supervisory scenarios include baseline and severely adverse scenarios, as described in the final rule that implements stress test requirements of the Dodd-Frank Act. The covered institutions are required to complete the DFAST reporting templates using financial information as of December 31 each year. The covered institutions must publish a summary of results of the annual stress test between June 15 and July 15.
The baseline and severely adverse scenarios start in the first quarter of 2020 and extend through the first quarter of 2023. Each scenario includes 28 variables; this set of variables is the same as the set provided in the supervisory scenarios last year. This year’s global market shock for the severely adverse scenario emphasizes a heightened stress to highly leveraged markets that causes CLOs and private equity investments to experience larger market value declines relative to 2019. For DFAST 2020, banks that are completing the global market shock must incorporate a counterparty default scenario component in the severely adverse scenario. The counterparty default scenario component involves the instantaneous and unexpected default of the bank’s largest counterparty. The largest counterparty of each bank will be determined by net stressed losses.
Section 165(i)(2) of the Dodd-Frank Act requires certain financial companies, including certain national banks and federal savings associations, to conduct annual stress tests. Unless OCC determines otherwise, if the covered institution is a consolidated subsidiary of a bank holding company or savings and loan holding company subject to the supervisory stress tests conducted by FED, then within the June 15 to July 15 period such covered institution may not publish the required summary of its annual stress test earlier than the date on which FED publishes the supervisory stress test results of the covered bank's parent holding company. The objective of the annual company-run stress test is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. OCC intends to use the data to assess the reasonableness of stress test results and determine whether additional analytical techniques are needed to identify, measure, and monitor risk.
Keywords: Americas, US, Banking, Stress Testing, DFAST 14A, Reporting, Baseline Scenario, Severely Adverse Scenario, Capital Adequacy, DFAST, FED
Previous ArticleRBI to Issue Directions on Exchange of Margin for OTC Derivatives
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.