FDIC Issues Final Rule Regarding Company-Run Stress Testing Requirements

The FDIC recently adopted a final rule regarding company-run stress testing requirements for FDIC-supervised state nonmember banks and state savings associations.  The rule is effective on November 25, 2019.

In enacting the final rule, the FDIC adopted without changes the proposed rule regarding company-run stress testing requirements issued on December 28, 2018.  Specifically, the final rule revises the minimum threshold for applicability from $10 billion to $250 billion, revises the frequency of required stress tests by FDIC-supervised institutions, and reduces the number of required stress testing scenarios from three to two.

The policy objective of the final rule is to conform the FDIC’s regulations to section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.  In addition to raising the minimum asset threshold for covered institutions, the final rule decreases the current “annual” frequency standard for required stress tests.  For most covered institutions, the final rule requires a biennial stress testing cycle.  However, for covered institutions that are subsidiaries of global systemically important bank holding companies or bank holding companies that have $700 billion or more in total assets (or have cross-jurisdictional activity of $75 billion or more), the final rule requires annual stress tests, on the same schedule that their bank holding companies are required to conduct and report stress tests.

The final rule also reduces the required stress-testing scenarios from three to two by removing the required “adverse” stress-testing scenario.  The final rule maintains the requirement to include the “baseline” and “severely adverse” stress-testing scenarios.  Finally, the rule also makes certain conforming and technical changes.