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.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
JFSA Publishes Q&A on Capital Adequacy Ratio and TLAC RegulationsRelated Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
FSB and NGFS Publish Initial Findings from Climate Scenario Analyses
The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
FSB Issues Reports on NBFI and Liquidity in Government Bonds
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
EU Finalizes Rules Under Crowdfunding Service Providers Regulation
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
