Federal Banking Agencies Issue Final Stress Testing Rules

This week, the Federal Reserve, the OCC and the FDIC each issued final rules that impose stress-testing requirements on all insured depository institutions and insured depository institution holding companies over a $10 billion total consolidated asset threshold, as required by Section 165(i) of the Dodd-Frank Act. These institutions will be required to conduct annual stress tests under baseline and multiple adverse macroeconomic scenarios according to parameters established by the respective regulatory agencies. Concurrently, the Federal Reserve issued a final rule implementing supervisory and company-run stress testing for bank holding companies with over $50 billion in total consolidated assets and nonbank financial companies designated by the Financial Stability Oversight Council under Section 165 of the Dodd-Frank Act. These systemically important financial institutions will be required to undergo annual stress tests conducted by the Federal Reserve, and will be required to conduct their own “company-run” stress tests twice a year.

The attached memorandum summarizes the key issues raised by the final rules and highlights certain changes between the final rules and the corresponding notices of proposed rulemaking published in January 2012. Although the final rules are substantively similar to those proposals, there were some significant changes to the procedural requirements in the final rules, particularly with respect to the timing of stress testing requirements applicable to financial institutions with $10 billion to $50 billion in total consolidated assets.