The Federal Deposit Insurance Corp. proposed new annual stress test requirements Tuesday for the 23 largest banks holding more than $10 billion in assets.
The Office of the Comptroller of the Currency and the Federal Reserve will issue identical proposals as well. The new guidelines were developed under mandate by the Dodd-Frank Act to monitor the health of the largest financial institutions on a more regular basis. One of the main questions to be determined before the rules are finalized is how much of the test results banks must disclose.
The tests will be performed in early January each year and cover potential economic conditions over a nine-quarter period.
Under the proposal, the FDIC will provide the banks with the given economic scenarios no later than the middle of November. Banks would be required to submit reports regulators by Jan. 5 covering “baseline, adverse and severely adverse results.”
According to the rule, banks must disclose results from the tests in early April. At a minimum, the banks must describe the risks used in the stress test and how the firms determined estimated losses from those scenarios. The proposal also requires banks to disclose aggregate losses, pre-provision revenue, loss reserves and changes in capital levels over the nine quarters under each scenario.
The FDIC said it would provide feedback to the banks concerning the results and require each bank to take the analysis into account when improving the overall risk management of the firm.
Language in the proposal issued Tuesday signaled that the FDIC board will consider concerns regarding the public disclosures of the stress tests results. Comments will be taken over the next two months.
Write to Jon Prior.
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