The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. have issued a final supervisory guidance regarding stress testing practices at banking organizations with total consolidated assets of more than $10 billion.
According to the agencies, the guidance highlights the importance of stress testing at banking organizations as an ‘ongoing risk management practice that supports a banking organization's forward-looking assessment of its risks and better equips it to address a range of adverse outcomes.’ This guidance is designed to build upon previously issued supervisory guidance that discusses the uses and merits of stress testing in specific areas of risk management.
Furthermore, the agencies said the guidance outlines ‘general principles for a satisfactory stress testing framework and describes various stress testing approaches and how stress testing should be used at various levels within an organization. The guidance also discusses the importance of stress testing in capital and liquidity planning and the importance of strong internal governance and controls as part of an effective stress testing framework.’
The guidance does not implement the stress testing requirements in the Dodd-Frank Act or in the Federal Reserve Board's capital plan rule that apply to certain companies, as those requirements have been or are being implemented through separate proposals by the respective agencies. However, the agencies expect that banking organizations with total consolidated assets of more than $10 billion would follow the principles set forth in the guidance – as well as other relevant supervisory guidance – when conducting stress testing in accordance with the Dodd-Frank Act, the capital plan rule, and other statutory or regulatory requirements.