OCC Publishes Scenarios and Templates for 2021 Stress Tests
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.
Related Links
Keywords: Americas, US, Banking, DFAST, Reporting, Stress Testing, Baseline Scenario, Severely Adverse Scenario, DFAST 14A, OCC
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
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.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Previous Article
JFSA Publishes Q&A on Capital Adequacy Ratio and TLAC RegulationsRelated Articles
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
FED Outlines Lending Conditions and Supervisory Activities in H1 2021
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.
FSB Updates List of Global Systemically Important Banks
The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.
FASB Proposes Improvements to Credit Losses Standard
The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.
US Agencies Issue Statement on Crypto-Asset Policy Initiatives
US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.
