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Financial Services Law Insights and Observations

Fed, OCC issue 2020 stress test, capital adequacy scenarios

Agency Rule-Making & Guidance Federal Reserve CCAR Stress Test OCC Of Interest to Non-US Persons Dodd-Frank Supervision

Agency Rule-Making & Guidance

On February 6, the Federal Reserve Board (Fed) released the hypothetical scenarios banks and supervisors will use to conduct the 2020 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress tests exercises for large bank holding companies and large U.S. operations of foreign firms. This year’s stress tests will evaluate 34 large banks with more than $100 billion in total assets to ensure that these banks have adequate capital and processes to continue lending to households and businesses, even during a severe recession. Both scenarios—baseline and severely adverse—include 28 variables that cover domestic and international economic activity. In addition, banks with large trading operations must also factor in a global market shock component as part of their scenarios. Capital plan and stress testing submissions are due by April 6. The Fed noted that it “continues to work toward having the stress capital buffer in place for this year’s stress tests,” and that “[t]he release of these hypothetical scenarios does not affect that separate rulemaking process.”

In related news, on February 6 the OCC also released its own stress testing scenarios for OCC-supervised institutions.