U.S. to allow smaller banks more time for stress tests
U.S. regulators on Tuesday approved a plan that would give smaller banks an extra year before they must begin conducting annual stress tests to determine if they can withstand a financial shock.
Stress tests are intended to demonstrate how banks would cope with a crisis and are part of more rigorous testing required by the 2010 Dodd-Frank financial oversight law. The largest U.S. banks face several such regulatory tests.
The board of the Federal Deposit Insurance Corp voted during a meeting on Tuesday to implement stress test rules for banks it regulates that have more than $10 billion in assets. The Office of the Comptroller of the Currency also announced it had finished comparable rules for banks under its supervision.
"This is an important rulemaking that will hopefully give us an important tool to identify risk going forward," FDIC Acting Chairman Martin Gruenberg said during the meeting.
Under the plans, banks with more than $10 billion in assets will run tests each year according to stress scenarios provided by regulators. The results will help regulators gauge the health of the banking industry and identify steps banks must take to strengthen their operations.
Larger institutions covered by the rules will receive the first set of scenarios in November and must report the results of the tests in January, the FDIC said.
But smaller banks said they would struggle to conduct testing that quickly, FDIC staff told the board. The board includes Gruenberg, Comptroller of the Currency Thomas Curry and Consumer Financial Protection Bureau Director Richard Cordray.
In response, the rules were modified to give banks with between $10 billion and $50 billion in assets until 2013 before they must begin stress testing. Those banks will have an additional year after that before they must publicly disclose the results of annual tests.
After that, banks in that range will also have a longer time frame each year to report the results of their tests.
"I believe the implementation timeline in the final rule strikes the right balance," Curry said. He said larger institutions already have experience with stress testing, so they are better prepared to begin this year.
The FDIC also said it would work with the OCC and the Federal Reserve to make sure all three agencies provide comparable stress scenarios to avoid confusion for banks that have multiple regulators. The Federal Reserve is also finalizing rules for the institutions it regulates.
(Reporting by Emily Stephenson; editing by Kenneth Barry)