OCC Proposes Stress Test Requirements for National Banks and Federal Savings Associations
January 25, 2012
Yesterday the Office of the Comptroller of the Currency (“OCC”) issued 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 national banks and federal savings associations with total consolidated assets of more than $10 billion (“Covered Institutions”)[1] to conduct annual capital-adequacy stress tests and meet certain reporting and disclosure requirements.
The requirements of the Proposed Rule are nearly identical to the annual company-run stress test requirements proposed by the Federal Reserve Board in December and the Federal Deposit Insurance Corporation (“FDIC”) last
week.[2]
Under the Proposed Rule, the OCC would provide at least three scenarios (“baseline,” “adverse” and “severely adverse”) to each Covered Institution in early November of each year. These scenarios would then be used by each Covered Institution to calculate, for each quarter-end within a nine-quarter planning horizon, the impact of such scenarios on its pre-provision net revenues, market and credit losses, loan loss reserves, and regulatory capital levels and ratios. On or before Jan. 5 of each year, each Covered Institution would be required to submit a report of the results of its stress test to the OCC. Within 90 days thereafter, each Covered Institution would be required to publish a summary of the results. The Proposed Rule would also require each Covered Institution to establish and maintain a system of controls, oversight and documentation, designed to ensure that the stress test processes used by the Covered Institution satisfy the Proposed Rule.
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[1] The OCC proposes not to apply the annual stress test requirements of this proposed rule to federal branches or agencies of a foreign bank. The company-conducted stress test requirements of Section 165(i)(2) apply to the parent company and to each subsidiary bank or savings association of the covered company that has $10 billion or more in total consolidated assets. The OCC recognizes the possibility that different covered institutions within a given parent institution may be required to conduct stress tests using different scenarios, if the scenarios required by their respective primary federal financial regulators are different. In this regard, the OCC intends to coordinate with the Board and the FDIC on the development of the three scenarios that will be specified each year under these regulations. The OCC anticipates making every effort to avoid differences in the scenarios required by each primary federal financial regulator under the regulations implementing Section 165(i)(2), and understands the Board and the FDIC to be in agreement.
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