WASHINGTON — Regulators on Thursday laid out guidelines for banks with more than $10 billion of assets on how to approach future stress testing.
The plan, issued by the Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, outlined the structure bank organizations should use in their stress testing to minimize risk in the event of a crisis. Comments are due on July 29.
Such a framework regulators would help identify vulnerabilities at the institutions, assess capital adequacy, assist with recovery planning, and more, regulators said.
"The recent financial crisis underscored the need for banking organizations to conduct stress tests to help prepare for events and circumstances that can threaten their financial condition and viability," the regulators said in a joint press release.
Banks, they said, should develop a stress test framework that matched the size, complexity, business activities and overall risk profile.
Regulators laid out several principles to help banks craft their stress test frameworks.
For example, banks should draft a framework that is "forward-looking and flexible." The tests should also be "clear, actionable, well-supported, and inform decision making."
Banks were also advised to follow one of the four approaches best suited to them in drafting a stress test mechanism. That could include a "scenario analysis" where banks would apply historical or hypothetical scenarios to assess the impact of events, even in extreme cases.
The agencies also made clear the guidance does not explicitly address the stress testing requirements under Dodd-Frank.
