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Bank regulators finalize rules for 'stress tests'
American banks that have between $10 billion and $50 billion in assets would have one year to get ready to submit annual stress tests to bank regulators.
The Federal Deposit Insurance Corporation (FDIC) unveiled Tuesday its final rule outlining how banks would have to test their books against adverse economic conditions, implementing a portion of the Dodd-Frank financial reform law.
Under the final rules, mid-size banks would not have to conduct self-run stress tests until October 2013. That initial test would be submitted only to regulators, and after that future tests would be disclosed publicly, with 2014 stress tests released to public in June 2015.
The timeline grants smaller banks more time to get up to speed with the stress testing requirement, but banks with more than$50 billion in assets would still have to begin stress testing this year.
The stress tests were authorized by the Dodd-Frank financial reform law, and are aimed at ensuring that a bank's finances are such that it could withstand a strong economic downturn without endangering its solvency. Under the tests, banks would subject their finances to a range of hypothetical economic situations, ranging from "baseline" to "severely adverse."
"Implementation of the Dodd-Frank stress test requirement is an important step in the Federal Reserve's efforts to promote the health of the financial sector," said Fed Governor Daniel K. Tarullo. "Stress testing is a key tool to ensure that financial companies have enough capital to weather a severe economic downturn without posing a risk to their communities, other financial institutions, or to the general economy."
A little more than 100 financial institutions would currently be subjected to the stress tests, and regulators will release the economic conditions to serve as test baselines later this year.
This post updated at 2:45 pm.
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