Financial Stress Test Rules Issued for National Banks

WASHINGTON (CN) - National banks and federal savings associations with assets over $10 billion must conduct an annual financial stress test, according to a new Office of the Comptroller of the Currency regulation. The institutions with assets over $50 billion must begin this year, according to the regulation.

Each covered institution must use the annual scenarios provided by the OCC, which are meant to reflect a minimum of three sets of economic and financial conditions, including baseline, adverse, and severely adverse scenarios, according to the regulation.

"A covered institution must be able to assess the potential impact of scenarios on the consolidated earnings, losses, and capital of a covered institution over the planning horizon, taking into account the covered institution's current condition, risks, exposures, strategies, and activities," the new regulation says.

Along with publishing the results of the testing and turning them in to regulatory agencies, "the board of directors and senior management of each covered institution must consider the results of the stress tests ... in the normal course of business, including but not limited to the covered institution's capital planning, assessment of capital adequacy, and risk management practices," the regulation says.

The Board of the Federal Reserve performs an additional stress test for nonbank financial companies with more than $50 billion in assets, to determine whether they have the capital necessary to absorb losses as a result of adverse economic conditions. The Fed issued proposed rules for implementing this so called "supervisory stress test," in January.

The amount triggering application of the rule is the "average total consolidated assets" for the four most recent consecutive quarters.

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