OCC BULLETIN 2014-33
Subject: Annual Stress Test
Date: July 17, 2014
To: Chief Executive Officers of All National Banks and Federal Savings Associations, Department and Division Heads, All Examining Personnel, and Other Interested Parties
Description: Notice of Proposed Rulemaking - Schedule Shift and Adjustments to Regulatory Capital Projections
The Office of the Comptroller of the Currency (OCC) proposes to adjust the timing of the annual stress testing cycle and to clarify the method used to calculate regulatory capital in the stress tests. The proposal also would provide that covered institutions will not have to calculate their regulatory capital requirements using the advanced approaches method in 12 CFR 3, subpart E, until the stress testing cycle beginning on January 1, 2016. The notice of proposed rulemaking was issued in the Federal Register on July 1, 2013, with a 60-day comment period.
The proposal would
Section 165(i) of the Dodd-Frank Act requires two types of stress tests. Section 165(i)(1) requires the Board of Governors of the Federal Reserve System (Federal Reserve Board) to conduct annual stress tests of holding companies with $50 billion or more in assets (“supervisory stress tests”). Section 165(i)(2) requires the federal banking agencies to issue regulations requiring financial companies with more than $10 billion in assets to conduct annual stress tests themselves (“company-run stress tests”).
On October 11, 2013, the OCC published revisions to its regulatory capital rules implementing the Basel III international capital standards (Basel III framework).2 The OCC is now proposing to adjust the schedule contained in its stress testing rule to relieve certain covered institutions of the burden associated with the January 5 submission deadline and to clarify the method to be used to calculate regulatory capital in the stress tests. The proposal would also clarify when covered institutions are required to estimate their minimum regulatory capital using the Basel III advanced approaches methodology.
ProposalThe OCC is proposing to shift the dates of the stress testing cycle by approximately three months. This would relieve covered institutions with over $50 billion in assets of the obligation to complete their stress testing submissions by January 5, a time of year when these institutions have other year-end obligations. The OCC believes that the annual stress test is an important risk-management tool, and covered institutions should conduct these tests at a time when they are better able to manage their resources. The stress testing cycle that, under the current rule, begins on October 1, 2015, would instead begin on January 1, 2016. The following tables summarize the proposed date changes.
Table 1: Revised Annual Stress Test Timeline for Covered Institutions With $50 Billion or More in Assets
|Action required||Current rule||Proposed rule|
|“As of” date for financial data used by stress test||September 30||December 31|
|Distribution of stress scenarios by OCC||By November 15||By February 15|
|Submission of stress test results||By March 31||By July 31|
|Disclosure of results summary||Between June 15 and June 30||Between October 15 and October 31|
The current OCC stress testing rule requires covered institutions to estimate the impact of stress scenarios on “the covered institution’s regulatory capital levels and ratios applicable to the covered institution under 12 CFR part 3 (for national banks) or part 167 (for federal savings associations), as applicable, and any other capital ratios specified by the OCC.” 3 A national bank or federal savings association that is an advanced approaches banking organization is required to use the advanced approaches to calculate its minimum regulatory capital ratios if it has conducted a satisfactory parallel run. 4 This proposal would provide that no covered institution is required to use the advanced approaches in its stress testing projections until the stress testing cycle beginning on January 1, 2016—even if an organization has previously exited parallel run.
On February 14, 2014, the OCC announced that certain national banks had completed a successful parallel run. Given the operational complexity associated with incorporating the advanced approaches into the stress testing process, the proposal would clarify that incorporating the advanced approaches into stress testing will be deferred for one stress testing cycle. The transition period would provide the OCC with sufficient time to integrate the advanced approaches into its stress testing examination processes and to provide guidance to advanced approaches banking organizations regarding supervisory expectations on the use of the advanced approaches in stress testing projections.
Please contact William Russell, National Bank Examiner, (202) 649-7157, Kari Falkenborg, National Bank Examiner, Midsize and Community Bank Supervision, (202) 649-6831, or Robert Scavotto, Deputy Director, International Analysis and Banking Condition, (202) 649-5540.
John C. Lyons Jr.
Senior Deputy Comptroller and Chief National Bank Examiner
4 A satisfactory parallel run is defined as a period of no less than four consecutive calendar quarters during which a banking organization complies with certain qualification requirements. 12 CFR 3.21(c).