OCC Proposes Amendments to Company-Run Stress Testing Rules

On February 12, 2019, the OCC published a notice of proposed rulemaking and request for comment on a proposed rule that would amend the OCC’s company-run stress testing requirements for national banks and federal savings associations. 

The proposed rule implements the requirements imposed by section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), enacted on May 24, 2018, which amended certain aspects of the company-run stress testing requirement in section 165(i)(2) of the Dodd-Frank Act.  Specifically, the proposed rule revises the minimum threshold for national banks and federal savings associations (collectively, banks) to conduct stress-tests from $10 billion to $250 billion by eliminating the two existing categories of “covered institutions” – “$10 to $50 billion or over covered institution” and “$50 billion or over covered institution” – and revising the term “covered institution” to mean a bank with average total consolidated assets that are greater than $250 billion. 

The proposed rule also revises the frequency by which certain banks would be required to conduct stress tests by eliminating the requirement for covered institutions to conduct stress tests on an “annual” basis and, instead, requiring that they be “periodic.”  While the term “periodic” is not defined in the EGRRCPA, the OCC is proposing that covered institutions would be required, in general, to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter (i.e.,2022, 2024, 2026, etc.).  A covered institution consolidated under a holding company that is required to conduct a stress test at least once every calendar year, however, would be required to conduct, report, and publish its stress test annually. 

Additionally, the proposed rule reduces the number of required stress testing scenarios from three to two, by no longer requiring the OCC to include an “adverse” stress-testing scenario as one of the types of scenarios it tests for.  According to the OCC, the “adverse” stress test scenario provided limited incremental information to the OCC and market participants beyond what the “baseline” and “severely adverse” stress-testing scenarios provide.  The OCC would continue to be required to conduct supervisory stress tests under both a “baseline” and “severely adverse” stress-testing scenario.  The proposed rule also includes certain facilitating and conforming changes to the stress testing requirements.

The OCC is accepting comments through March 14, 2019.