OCC published the baseline and severely adverse scenarios for use in the upcoming Dodd-Frank Act Stress Test (DFAST) exercise for covered institutions. OCC has also published the reporting templates and instructions for data collection, which is implemented through the DAST-14A report. OCC specified that Category III banks are not required to submit stress testing data in the 2021 DFAST reporting year but these banks will be required to submit again in 2022.
OCC has developed these supervisory scenarios in coordination with the FED and FDIC. The scenarios start in the first quarter of 2021 and extend through the first quarter of 2024. Each scenario includes 28 variables; this set of variables is the same as those provided in last year’s supervisory scenarios. Each scenario includes economic variables, including macroeconomic activity, unemployment, exchange rates, prices, income, and interest rates. The baseline scenario for international economic activity and inflation features a relatively steady expansion in activity, albeit one that proceeds at different rates across countries. The severely adverse scenario, however, is characterized by a severe global recession accompanied by a period of heightened stress in commercial real estate and corporate debt markets. The international component of this scenario features severe recessions in the euro area, the United Kingdom, and Japan, along with a significant deceleration in activity in developing Asia.
Certain national banks and federal savings associations are required to conduct the company-run stress tests under the Dodd-Frank Act. OCC specifies that covered institutions are required to submit the results of their company-run stress tests by April 5 and publish those results between June 15 and July 15 each year. The results of the company-run stress tests provide OCC with the forward-looking information that is used in bank supervision and assists the agency in assessing the risk profile and capital adequacy of a company. The objective of the 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. These stress test results are also expected to support ongoing improvement in a covered institution's stress testing practices with respect to its internal assessments of capital adequacy and overall capital planning.
Keywords: Americas, US, Banking, DFAST, Reporting, Stress Testing, Baseline Scenario, Severely Adverse Scenario, DFAST 14A, OCC
Previous ArticleJFSA Publishes Q&A on Capital Adequacy Ratio and TLAC Regulations
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.
The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.