FDIC Proposes Stress Test Requirements for Large Nonmember Banks
January 19, 2012
This week, the Federal Deposit Insurance Corporation (“FDIC”) approved a notice of proposed rulemaking (the “Proposed Rule”) to implement Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which would require certain large insured depository institutions to conduct annual capital-adequacy stress tests.[1] Specifically, the Proposed Rule would apply to:
- FDIC-insured state-chartered banks that are not members of the Federal Reserve System and have total consolidated assets of more than $10 billion; and
- FDIC-insured state-chartered savings associations with total consolidated assets of more than $10 billion
(collectively, “Covered Banks”). The requirements of the Proposed Rule are substantively identical to the annual company-run stress test requirements proposed by the Federal Reserve Board last month for similarly-sized bank holding companies, savings and loan holding companies and state-chartered banks that are members of the Federal Reserve System.[2] The Office of the Comptroller of the Currency is expected to release a similar proposal soon for national banks and thrifts.
Under the Proposed Rule, the FDIC would provide at least three scenarios (“baseline,” “adverse” and “severely adverse”) to each Covered Bank no later than mid-November each year. These scenarios would then be used by each Covered Bank to calculate, for each quarter-end within a nine-quarter planning horizon, the impact of such scenarios on its potential losses, pre-provision revenues, loan loss reserves and pro forma capital provisions, including the impact on capital levels and ratios. On or before Jan. 5 of each year, each Covered Bank would be required to submit a report of the results of its stress test to the FDIC. Within three months thereafter, each Covered Bank would be required to publish a summary of the results. The Proposed Rule would also require each Covered Bank to establish and maintain a system of controls, oversight and documentation, designed to ensure that the stress testing processes used by the bank satisfy the Proposed Rule.
Authored by
.
If you have any questions concerning this Alert, please contact your attorney at Schulte Roth & Zabel or the author.
This information has been prepared by Schulte Roth & Zabel LLP (“SRZ”) for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with SRZ. Electronic mail or other communications with SRZ cannot be guaranteed to be confidential and will not (without SRZ agreement) create an attorney-client relationship with SRZ. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions.