Banking and Finance Law Daily Fed stress testing rules ease requirements for noncomplex firms
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Tuesday, January 31, 2017

Fed stress testing rules ease requirements for noncomplex firms

By Andrew A. Turner, J.D.

The Federal Reserve Board has adjusted its capital plan and stress testing rules by removing large and noncomplex firms from the qualitative assessment of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR). The final rule is effective for the 2017 cycle that began on Jan. 1, 2017.

Under the final rule, large and noncomplex firms (those with total consolidated assets of at least $50 billion but less than $250 billion, nonbank assets of less than $75 billion, and that are not U.S. global-systemically important banks) are no longer subject to provisions allowing the Fed to object to a capital plan on the basis of qualitative deficiencies in the firm’s capital planning process. Like the proposed rule (see Banking and Finance Law Daily, Sept. 26, 2016), the final rule reduces reporting requirements for large and noncomplex firms.

The rule amendments also decrease the amount of additional capital a firm can distribute to shareholders in connection with a capital plan that has not been objected to without seeking prior approval from the Fed. Previously, a firm could distribute up to an additional 1 percent of its tier 1 capital beyond the amount in its capital plan. The final rule reduces that amount to 0.25 percent of tier 1 capital.

For all bank holding companies subject to the capital plan rule, the final rule simplifies the initial applicability provisions of both the capital plan and the stress test rules. In addition, it extends the range of potential as-of dates the Fed may use for the trading and counterparty scenario component used in the stress test rules.

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