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Remigio Ferrara - NMLS ID #476380
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11325 Random Hills Road Suite 400 Fairfax, VA 22030
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Agencies finalize large bank stress testing guidance

May 14, 2012 by Remigio Ferrara

The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on Monday issued final supervisory guidance regarding stress-testing practices at banking organizations with total consolidated assets of more than $10 billion.

The guidance highlights the importance of stress testing at banking organizations as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips it to address a range of adverse outcomes. The recent financial crisis underscored the need for banking organizations to incorporate stress testing into their risk management practices, demonstrating that banking organizations unprepared for particularly adverse events and circumstances can suffer acute threats to their financial condition and viability.

This guidance builds upon previously issued supervisory guidance that discusses the uses and merits of stress testing in specific areas of risk management. The guidance outlines general principles for a satisfactory stress testing framework and describes various stress testing approaches and how stress testing should be used at various levels within an organization. The guidance also discusses the importance of stress testing in capital and liquidity planning and the importance of strong internal governance and controls as part of an effective stress-testing framework.

The guidance does not implement the stress testing requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) or in the Federal Reserve Board’s capital plan rule that apply to certain companies, as those requirements have been or are being implemented through separate proposals by the respective agencies. However, the agencies expect that banking organizations with total consolidated assets of more than $10 billion would follow the principles set forth in the guidance–as well as other relevant supervisory guidance–when conducting stress testing in accordance with the Dodd-Frank Act, the capital plan rule, and other statutory or regulatory requirements.

Federal Register notice: HTML | PDF

2012 Banking and Consumer Regulatory Policy
 

Filed Under: Banking & Consumer Reg Policy

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Remigio Ferrara

Senior Loan Officer, McLean Mortgage Corporation

11325 Random Hills Road, Suite 400
Fairfax, VA 22030

Website: www.mcleanlending.com/lo_rferrara.php
Office: 571-419-6632
Cell: 703-622-6999
NMLS ID #476380

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