FED Releases Results of Supervisory Stress Tests for Banks
FED published the results of the 2018 supervisory stress tests for banks. The results show that the nation's largest bank holding companies are strongly capitalized and would be able to lend to households and businesses during a severe global recession. This year's exercise tested 35 participating bank holding companies during the nine quarters.
The most severe hypothetical scenario projects USD 578 billion in total losses by participating banks. The "severely adverse" scenario, the most stringent scenario yet used in the FED stress tests, features a severe global recession with the U.S. unemployment rate rising by almost 6 percentage points to 10%, accompanied by a steepening Treasury yield curve. The firms' aggregate common equity tier 1 capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual level of 12.3% in the fourth quarter of 2017 to a minimum level of 7.9% in the hypothetical stress scenario. Since 2009, the 35 firms have added about USD 800 billion in common equity capital.
The FED stress scenarios assume deliberately stringent and conservative hypothetical economic and financial market conditions. The results are not forecasts or expected outcomes. This is the eighth round of stress tests led FED since 2009 and the sixth round required by the Dodd-Frank Act. The 35 firms tested this year represent about 80% of the assets of all banks operating in the U.S. FED uses its own independent projections of losses and incomes for each firm. The Dodd-Frank Act stress tests are one component of FED's analysis during the Comprehensive Capital Analysis and Review (CCAR), which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. CCAR results will be released on Thursday, June 28.
Additionally, FED announced that to be consistent with the recently passed Economic Growth, Regulatory Reform, and Consumer Protection Act, bank holding companies with less than USD 100 billion in consolidated assets are no longer subject to supervisory stress testing, including both the Dodd-Frank Act stress tests and CCAR. Consequently, FED will not include CIT Group Inc., Comerica Incorporated, and Zions Bancorporation in this year's results and future cycles. FED will have further information on its implementation of the new law at a later date.
Related Links
Keywords: Americas, US, Banking, Stress Testing, DFAST, CCAR, FED
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
RBI Amends Level 1 HQLA Requirement for Computing LCR of BanksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
