OCC raises threshold to $250 billion for company-run stress tests of banks, FSAs; conforms with EGRRCPA

A final rule raising the minimum asset threshold for required company-run stress testing from $10 billion to $250 billion was issued Thursday by the chief federal regulator of national banks and federal savings associations (FSAs) with an effective date of Nov. 29.

The final rule, issued by the Office of the Comptroller of the Currency (OCC), and similar to those pending final action by the Federal Reserve Board and Federal Deposit Insurance Corp. (FDIC), implements provisions of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The act redefines what is a “covered” institution for company-run stress tests to one having average total consolidated assets of more than $250 billion.

Besides the minimum threshold, the final rule, as provided in EGRRCPA, revises the frequency by which certain national banks and federal savings associations are required to conduct stress tests (to be periodic rather than annual); reduces the number of required stress testing scenarios from three to two (eliminating the “adverse” scenario); and makes technical changes to the stress testing requirements.

Regarding timing, the OCC final rule will require that, in general, a covered institution must conduct, report, and publish a stress test once every two years, beginning on Jan. 1, 2020, and in every even-numbered year after that, according to the notice of final rule. Still, annual stress testing (and reporting) will continue to apply to a bank that is consolidated under a holding company required by the Federal Reserve Board to stress test each calendar year.

The Fed Board last year proposed to establish four risk-based categories of standards for large holding companies to determine the application of prudential standards, including stress testing. The OCC said its rule will incorporate by reference “any potential changes to stress testing frequency in the Board’s regulations, including from the Board’s proposed rule.”

The rule’s Nov. 29 effective date reflects the date prescribed by EGRRCPA. Stress-testing dates and reporting deadlines, however, are based in the final rule on the covered institution’s reporting year. “For example, if a biennial stress testing covered institution is preparing a stress test for the 2022 reporting year, the covered institution would rely on financial data available as of December 31, 2021; use stress test scenarios that would be provided by the OCC no later than February 15, 2022; provide its report of the results of the stress test to the OCC by April 5, 2022; and publish a summary of the results of the stress test in the period starting June 15 and ending July 15 of 2022,” the final rule states.

Institutions with biennial stress testing requirements will be required to conduct stress tests in the same reporting year, it states.

The final rule also revises provisions related to a bank’s transition from “non-covered” to “covered” institution status.

Notice of final rule (for Federal Register)