Fed sets date for release of 2020 stress tests, COVID-19 analyses

WASHINGTON — The Federal Reserve announced Tuesday it will publish the results from both of its annual stress tests June 25, as well as supplemental analyses to assess bank capital under different coronavirus-related scenarios.

Thirty-four banks — each with more than $100 billion of assets — are subject to the Fed’s Dodd-Frank Act stress tests and Comprehensive Capital Analysis and Review examinations this year. Unlike in previous years, the Fed will publish the results from both tests simultaneously.

Banks subject to the stress tests are required to submit data from their balance sheets as of yearend 2019. The Fed tests those balance sheets against baseline and severely adverse scenarios.

However, many have already discounted this year’s stress tests, noting that the current economic shock that has accompanied the COVID-19 pandemic is in many cases worse than the Fed’s hypothetical severely adverse scenario. Banks’ balance sheets are likely to have changed substantially since the end of 2019, before the onset of the coronavirus.

But the Fed had said previously it would conduct “sensitivity analyses” to examine banks' responses to the pandemic. That addendum will consist of “alternative scenarios and certain adjustments to portfolios to credibly reflect current economic and banking conditions.”

Under normal circumstances, the standard stress test results dictate a firm’s planned capital distributions for the year. Some have speculated that the Fed could use the supplemental sensitivity analyses to inform decisions on capital distributions.