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  • Fed proposes updates to capital planning requirements

    Agency Rule-Making & Guidance

    On September 30, the Federal Reserve Board issued a notice of proposed rulemaking (NPRM) to tailor the requirements in the Fed’s capital plan rule applicable to large bank holding companies and U.S. intermediate holding companies of foreign banking organizations. The changes would conform the capital planning, regulatory reporting, and stress capital buffer requirements for firms with $100 billion or more in total assets (Category IV) with the tailored regulatory framework approved by the Fed last October (covered by InfoBytes here). The NPRM would also make additional changes to the Fed’s stress testing rules, stress testing policy statement, and regulatory reporting requirements related to “business plan change assumptions, capital action assumptions, and the publication of company-run stress test results for savings and loan holding companies” to be consistent with a final rule issued last year that amended resolution planning requirements for large domestic and foreign firms (covered by InfoBytes here). These changes include removing company-run stress test requirements and implementing biennial, rather than annual, supervisory stress tests for firms subject to Category IV standards. Additionally, the Fed seeks comments on its existing capital planning guidance for firms of all sizes. Notably, the Fed states that the NPRM would not affect the calculation of firms’ capital requirements. Comments on the NPRM are due November 20.

    Agency Rule-Making & Guidance Federal Reserve Stress Test Of Interest to Non-US Persons

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  • Federal Reserve announces temporary revisions to Capital Assessment and Stress Testing Reports

    Federal Issues

    On July 8, the Federal Reserve announced revisions to its Capital Assessments and Stress Testing Reports, Form FR Y-14A/Q/M; OMB No. 7100-0341. The temporary revisions implement changes in response to the Covid-19 pandemic, including the incorporation of data related to certain aspects of the CARES Act, the Paycheck Protection Program, and Federal Reserve lending facilities. The changes apply to reports beginning with July 31, 2020, or September 30, 2020, as-of dates. Additionally, the Federal Reserve has temporarily revised the submission frequency of FR Y–14Q, Schedule H (Wholesale) from a quarterly basis to a monthly basis for Category I–III firms, effective July 31, 2020.

    Federal Issues Covid-19 CARES Act SBA Stress Test Federal Reserve

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  • Fed: Large banks “sufficiently capitalized” for Covid-19 stress

    Federal Issues

    On June 25, the Federal Reserve Board released the results of the Dodd-Frank Act stress tests for 2020 (DFAST 2020) and another report analyzing additional sensitivities due to the Covid-19 pandemic. The additional sensitivities report assessed the resiliency of large banks under three hypothetical recessions, which could result from the Covid-19 pandemic. Overall, under the hypothetical scenarios, loan losses for the 34 banks ranged from $560 billion to $700 billion in the sensitivity analysis, and aggregate capital ratios declined from 12 percent in the fourth quarter of 2019 to between 9.5 percent and 7.7 percent. The Fed concludes that due to strong current capital levels, “the large majority of banks remain sufficiently capitalized over the entirety of the projection horizon in all scenarios.” The Fed notes that this analysis did not incorporate the effects of government stimulus payments or expanded unemployment insurance. In response to the results, the Fed notes that all large banks are now required to, among other things, resubmit their capital plans later this year to reflect the current stresses, and the Fed intends to conduct additional analysis each quarter to determine if other response adjustments are needed.

    Additionally, the results of the full DFAST 2020—which was designed prior to the Covid-19 pandemic—suggest that the 33 banks subject to the test would “experience substantial losses under the severely adverse scenario but could continue lending to businesses and households, due to the substantial buildup of capital since the financial crisis.”

    Federal Issues Federal Reserve Stress Test Dodd-Frank Covid-19

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  • Fed vice chairman discusses stress testing adaptability due to Covid-19 pandemic

    Federal Issues

    On June 19, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke at a meeting of the Women in Housing and Finance regarding adjustments to the Fed’s periodic stress testing of large banks in the wake of Covid-19. Quarles explained that because the Fed lacked the time and comprehensive data to run a complete and updated Covid-19 event stress test this year, the Fed made the decision to continue with the “severely adverse scenario” begun in February 2020, while also performing a new “sensitivity analysis.” The sensitivity analysis considers three distinct downside risk paths for the economy—a rapid recovery, a slower recovery, and a W-shaped double-dip recession.

    As in past years, the Fed intends to disclose annual stress test results using the February 2020 scenario (run against bank exposures as of December 2019), which will include both firm-specific and aggregate results. Quarles also indicated the Fed would be disclosing some results from the new sensitivity analysis. According to Quarles, these results will not be firm-specific, but will be “aggregated across banks comparing how the banking system as a whole would fare under the three distinct views of the future.” The Fed also plans to “move ahead and provide all banks subject to stress testing with a stress capital buffer requirement based on the February 2020 scenario, under [the Fed’s] new approach integrating stress testing with capital requirements.” Once banks determine their final plans, the Fed will publicly release the final capital requirements for each individual bank later this year before they take effect in the fourth quarter as planned. Quarles also noted that additional policy actions, if warranted, may be taken in the coming months as the Fed continues to monitor the economic conditions.

    Federal Issues Federal Reserve Stress Test Covid-19

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  • FHFA final rule amends stress testing requirements

    Agency Rule-Making & Guidance

    On March 24, the FHFA published a final rule amending its stress testing requirements consistent with changes made by section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule adopts amendments proposed last December (covered by InfoBytes here) without change, increasing the minimum threshold for FHFA-regulated entities to conduct stress tests from $10 billion to $250 billion in total consolidated assets, removing the requirements for Federal Home Loan Banks to conduct stress tests, and reducing the number of stress test scenarios from three to two by removing the “adverse” scenario. The final rule took effect March 24.

    Agency Rule-Making & Guidance FHFA Stress Test EGRRCPA FHLB

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  • Fed finalizes simplified capital rules for large banks

    Agency Rule-Making & Guidance

    On March 4, the Federal Reserve Board (Fed) released a final rule amending and simplifying the capital rules for large banks, as well as instructions for the 2020 Comprehensive Capital Analysis and Review (CCAR) cycle. The final rule, which is “broadly similar” to the Fed’s April 2018 proposal (covered by InfoBytes here), incorporates a simplified framework that integrates a “stress capital buffer” (SCB) requirement, which will use supervisory stress test results to establish the size of a firm’s stress capital buffer requirement. The stress test—one element of the annual CCAR—helps determine a firm’s capital requirements for the upcoming year. According to the Fed, “[b]y combining the Board’s stress tests—which project the capital needs of each firm under adverse economic conditions—with the Board’s non-stress capital requirements, large banks will now be subject to a single, forward-looking, and risk-sensitive capital framework.” The simplification would result in banks needing to meet eight capital requirements, instead of the current 13. Among other things, the final rule will also (i) increase capital requirements for global systemically important banks and decrease requirements for less complex banks; and (ii) continue to subject all banks to ongoing, non-stress leverage requirements.

    The final rule applies to bank holding companies and U.S. intermediate holding companies of foreign banking organizations with more than $100 billion in total consolidated assets, and will take effect 60 days after publication in the Federal Register, with a firm’s first stress capital buffer requirement, as determined under the final rule, effective October 1, 2020.

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

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  • FDIC issues 2020 stress testing scenarios

    Agency Rule-Making & Guidance

    On February 14, the FDIC released economic scenarios—developed in coordination with the Federal Reserve Board (Fed) and the OCC—for certain supervised financial institutions with consolidated assets of more than $250 billion. The Dodd-Frank Act requires financial companies to run stress tests using the scenarios. According to the FDIC, the scenarios cover a baseline scenario that is “in line with a survey of private sector economic forecasters” and a severely adverse scenario “designed to assess the strength and resilience of financial institutions.”

    As previously reported by InfoBytes, the OCC and the Fed both released their stress testing scenarios on February 6.

    Agency Rule-Making & Guidance Federal Reserve FDIC Stress Test Supervision Dodd-Frank OCC

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  • Fed, OCC issue 2020 stress test, capital adequacy scenarios

    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.

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

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  • Fed provides FAQs for tailoring rules

    Agency Rule-Making & Guidance

    On January 13, the Federal Reserve Board (Fed) issued SR 20-2, “Frequently Asked Questions on the Tailoring Rules” (FAQs) applicable to bank holding companies, savings and loan companies, U.S. intermediate holding companies with $100 billion or more in total assets, and certain depository institutions. In October, as previously covered by InfoBytes, the Fed and the OCC released a jointly developed framework that set out four categories to be used to classify these banking entities for the purposes of determining regulatory capital and liquidity requirements based on risk. The FAQs provide guidance on the tailoring rules, including answers to questions about Liquidity Coverage Ratio (LCR) requirements, recognition of Accumulated Other Comprehensive Income, compliance requirements for foreign banking organizations with less than $100 billion in U.S. assets, and the interpretation of “quarterly” in relation to stress testing frequency.

    Agency Rule-Making & Guidance Federal Reserve Bank Holding Companies SIFIs Liquidity Standards Stress Test OCC Of Interest to Non-US Persons LCR Bank Compliance

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  • FHFA proposes stress testing amendments

    Agency Rule-Making & Guidance

    On December 16, the FHFA released a notice of proposed rulemaking (NPRM) to amend the stress testing requirements for Federal Home Loan Banks (FHL Banks), consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Specifically, the NPRM will (i) increase the minimum threshold for regulated entities to conduct stress tests from $10 billion to $250 billion in total consolidated assets; (ii) remove the requirements for FHL Banks subject to stress testing, as none of the banks meet the minimum threshold (notably, under the proposal, the Director will maintain the ability to require any regulated entity with assets below the minimum threshold to conduct stress tests at his or her discretion); and (iii) reduce the number of stress test scenarios from three to two by removing the “adverse” scenario. According to the FHFA, while the “adverse” scenario provides value in limited circumstances, “the ‘baseline’ and ‘severely adverse’ scenarios largely cover the full range of expected and stressful conditions.” As such, the FHFA believes removing the “adverse” scenario will reduce the supervisory burden for FHL Banks. The FHFA further proposes that the Enterprises (Fannie Mae and Freddie Mac)—who remain subject to stress testing under the NPRM—be required to conduct stress tests on an annual basis, as Section 401 changed the required frequency from “annual” to “periodic,” but did not define the term “periodic” in the Act.

    Comments on the NPRM are due January 13, 2020.

    Agency Rule-Making & Guidance FHFA Stress Test EGRRCPA Fannie Mae Freddie Mac

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