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OCC, FDIC, and Fed Release Stress Test Scenarios for 2017
On February 3, the Fed announced the release of the “Supervisory Scenarios” to be used by banks and supervisors for the 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and also issued instructions to firms participating in CCAR. The Fed also published three letters that provide additional information on its stress-testing program. The three letters describe: (i) the Horizontal Capital Review for large, noncomplex companies; (ii) the CCAR qualitative assessment for U.S. intermediate holding companies of foreign banks, which are submitting capital plans for the first time; and (iii) improvements to how the Fed will estimate post-stress capital ratios.
On February 3, the OCC similarly released economic and financial market scenarios for 2017 that are to be used by national banks and federal savings associations (with total consolidated assets of more than $10 billion) in their annual Dodd-Frank Act-mandated stress test. On February 6, the FDIC released its stress test scenarios, working in consultation with the Fed and OCC.
The three sets of supervisory scenarios provide each agency with forward-looking information for use in bank supervision and will assist the agencies in assessing the covered institutions’ risk profile and capital adequacy.
Fed Survey: CRE Tightening Trend Continues
On February 6, the Fed released its January 2017 senior loan officer survey, addressing changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. The January survey results indicated that over the fourth quarter of 2016, on balance, lenders left their standards on commercial and industrial (“C&I”) loans unchanged, while tightening credit for commercial real estate (“CRE”) loans. Banks reported that they expect to ease standards on C&I loans and for the asset quality of such loans to improve somewhat this year. In contrast, banks expect to tighten standards on CRE loans, while they expect the asset quality of most CRE loan categories to remain unchanged. As to loans to households, banks reported that demand for most types of home-purchase loans weakened over the fourth quarter. On balance, banks reported that they expect to ease standards and to see asset quality improve somewhat for most residential home-purchase loans in 2017.
For additional details see:
- Table 1 – Opinion Survey on Bank Lending Practices at Selected Large Banks in the U.S.
- Table 2 – Opinion Survey on Bank Lending Practices at Selected Branches & Agencies of Foreign Banks
- Charts – Measures of Supply and Demand for Commercial & Industrial Loans
Fed Finalizes Rule Simplifying Stress Testing Process for Regional Banks
On January 30, the Fed issued a finalized version of its rule aimed at simplifying the Fed’s Comprehensive Capital Analysis and Review (CCAR or “stress test”) by exempting all but the largest financial institutions from the qualitative assessment portion of the Fed’s stress test. The changes will apply to the 2017 CCAR cycle, which began on January 1, 2017.
Specifically, the new rule provides that “large and noncomplex firms”—those with total consolidated assets of at least $50 billion but less than $250 billion, and nonbank assets of less than $75 billion (and that are not U.S. global-systemically important banks)—will no longer be subject to the provisions allowing the Fed to object to a bank’s capital adequacy plan based on an evaluation of hypothetical scenarios of severe economic and financial market stress, known as a “qualitative assessment.” Previously, the Board could object to the annual capital plan of any bank subject to stress testing, based on the quantitative or qualitative findings of the exercise. However, the rule also decreases the amount of additional capital exempted banks can distribute to shareholders in connection with a capital plan without seeking prior approval from the Fed, now 0.25 percent of tier 1 capital down from 1 percent.
Special Alert: Trump Administration Initiates “Regulatory Freeze”
Buckley Sandler Special Alert
On January 20, Reince Priebus, Chief of Staff to President Trump, issued a memorandum to the heads of executive departments and agencies initiating a regulatory review to be headed by the Director of the Office of Management and Budget (“OMB”). Congressman Mick Mulvaney (R-SC) has been nominated to fill that position.
On behalf of the President, the memorandum asks the following of the agency and department heads:
- No new regulations: “[S]end no regulation to the Office of the Federal Register (the ‘OFR’) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”
- Withdraw final but unpublished regulations: “With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval.”
- Delay the effective date of published but not yet effective regulations: “With respect to regulations that have been published in the OFR but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum” and consider notice and comment to further delay the effective date or to address “questions of fact, law, or policy.” Following the delay, regulations that “raise no substantial questions of law or policy” would be allowed to take effect. For those regulations that do raise such questions, the agency or department “should notify the OMB Director and take further appropriate action in consultation with the OMB Director.”
Rulemakings subject to statutory or judicial deadlines are exempt, and the OMB Director has the authority to grant further exemptions for “emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”
Click here to read full special alert
If you have questions about the “freeze” or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.