Dodd-Frank Act Stress Test (Company-Run)
Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires national banks and federal savings associations with total consolidated assets of more than $10 billion to conduct annual stress tests. On October 9, 2012, the OCC published its final annual stress test rule (12 CFR 46), which set out definitions and rules for scope of application, scenarios, reporting, and disclosure. On December 3, 2014, the OCC published final rules to adjust the timing of the annual stress testing cycle and to clarify the method used to calculate regulatory capital in the stress tests. On October 27, 2017, the OCC proposed technical and conforming changes to the stress test rule.
Beginning in 2016, all covered institutions, as defined in the final rule, with between $10 and $50 billion in assets are required to submit the results of their company-run stress tests to the OCC by July 31 and publish those results between October 15 and October 31. Covered institutions with $50 billion in assets or more are required to submit the results of their company-run stress tests to the OCC by April 5 and publish those results between June 15 and July 15. The OCC will provide the required scenarios to the covered institutions by February 15 of each year.
The results of the company-run stress tests provide the OCC with forward-looking information used in bank supervision and will assist the agency in assessing the company’s risk profile and capital adequacy. The objective of the annual company-run stress test is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. The OCC intends to use the data to assess the reasonableness of the stress test results and determine whether additional analytical techniques are needed to identify, measure and monitor risk. These stress test results are also expected to support ongoing improvement in a covered institution’s stress testing practices with respect to its internal assessments of capital adequacy and overall capital planning.
Beginning in 2016, the OCC will release economic and financial market scenarios that are used in the annual company-run stress test under the Dodd-Frank Act no later than February 15. The scenarios include baseline, adverse and severely adverse scenarios. Each scenario includes economic variables, including macroeconomic activity, unemployment, exchange rates, prices, incomes and interest rates. The adverse and severely adverse scenarios are not forecasts, but rather hypothetical scenarios designed to assess the strength and resilience of financial institutions. Note that the scenarios are expected to be the same for both the $50 billion or more and $10 billion to $50 billion size institutions.
These reporting templates collect quantitative projections of balance sheet, capital, losses, and income across three or more macroeconomic scenarios, along with qualitative information on methodologies.
Covered institutions are required to complete reporting templates using financial information as of December 31 each year. For 2018, the OCC has proposed the following changes to the templates and instructions:
Click here for 2017, 2016, 2015 and 2014 DFAST templates, instructions, scenarios, and technical instructions.
The $10 billion to $50 billion covered institutions will be required to complete the following templates:
Disclosure of Annual Stress Test Results
The Annual Stress Test rule (12 CFR 46.8) requires the covered institutions to publish a summary of the results of its annual stress tests. The required summary of results may be published on the covered institution’s web site or in any other forum that is reasonably accessible to the public.