Federal Reserve Board Proposes Revisions to Stress Test Requirements

The Federal Reserve Board recently issued a notice of proposed rulemaking, inviting comments on a proposal to increase the minimum thresholds under its rules for state member banks to conduct stress tests from $10 billion to $250 billion in total consolidated assets.

In addition, the proposed rule would require a biennial stress testing cycle, instead of the current annual stress testing cycle, for most covered institutions.  However, 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) would still be required to conduct and report stress tests annually.

Moreover, under the current rules, stress tests must include at least the following three different stress-testing scenarios: (1) baseline; (2) adverse; and (3) severely adverse.  The proposed rule would remove the requirement to include the “adverse” stress-testing scenario, but maintain the requirement to include the “baseline” and “severely adverse” stress-testing scenarios.  In proposing to remove the “adverse” stress-testing scenario, the Federal Reserve Board stated that the “baseline” and “severely adverse” scenarios cover the full range of expected and stressful conditions; the “adverse” stress-testing scenario has only provided further limited incremental information.

The proposed rule is similar to rules previously proposed by the FDIC and the OCC.  WBK previously wrote about those proposed rules here.  Comments on the three agencies’ proposed rules must be submitted by February 19, 2019.