Both the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have issued notices of proposed rulemaking to increase asset threshold for stress testing requirements for national banks and Federal savings associations. The proposed rules are open for public comment until February 2019.

The Regulators have issued the notices to revise the existing threshold on December 18, 2018.

The proposed rule will amend the stress testing threshold for all federally supervised banks and savings associations. 

With the implementation of the proposed rule, all financial institutions that possess less than $250 billion in total assets will be free from company-run stress testing requirements. 

The changes to the existing rules are carried out under a new law called the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

The EGRRCPA was signed into federal law on May 24, 2018, by President Donald Trump. This bill was passed to ease the regulations imposed by the Dodd-Frank Act.

According to a report, the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGGRCPA) increased the minimum asset threshold for stress testing requirement from $10 billion to $250 billion. 

The same report also says that the law amends the need for financial institutions to conduct stress tests from “annually” to “periodically.” Apart from that, the new law no longer requires the “adverse” stress testing scenario, which eventually limits them to two stress tests.

Background

Section 165(i)(2) of Dodd-Frank Act required certain financial institutions with total consolidated assets of more than $ 10 billion to carry out annual company-run stress tests. 

This section of the Dodd-Frank Act also required these banks to give a report to OCC about the stress tests. On top of that, the OCC had to issue regulations to establish methodologies for the financial institutions to conduct stress tests.

According to OCC, “Section 165(i) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act),1 as initially enacted, required a national bank or Federal savings association (FSA) (collectively, banks) with total consolidated assets of more than $10 billion to conduct and report an annual stress test.”

The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) amended certain sections of the Dodd-Frank Act especially section  165(i)(2) that needed certain financial institutions to carry out annual company-run stress tests. 

Here is a detailed description of the changes that the proposed rule will bring.

• It will revise the minimum threshold for financial institutions (banks and Federal savings associations) to conduct stress tests from $10 billion to $250 billion
• It will change the frequency by which certain financial institutions carry out stress tests from ones a year to twice a year
• It will decrease the number of stress tests scenarios required by banks and Federal savings associations from three to two

The implementation of the proposed rule will reduce the regulatory burdens on banks and Federal savings associations, which will eventually strengthen their growth.

Article Provided By: Accume Partners