Banking and Finance Law Daily First FAQs on stress tests, capital reviews published
Tuesday, January 9, 2018

First FAQs on stress tests, capital reviews published

By Richard A. Roth, J.D.

The Federal Reserve Board has published its first set of questions and answers explaining the Dodd-Frank Act-mandated stress tests and Comprehensive Capital Analysis and Review. According to the Fed, the FAQs are intended to help financial institutions that are subject to the tests understand the reporting requirements and related guidance.

The published FAQs cover generally applicable questions that have been asked by covered financial institutions. Answers to questions are provided to the institutions directly and may be published on the Fed’s website as well. The FAQs now being published relate to questions that were posed on or after Aug. 1, 2017, although earlier questions and answers might be published in the future if they are relevant to new questions.

The Fed has organized the FAQs into nine categories:

  1. General
  2. Adjustment to Capital Plan
  3. DFAST (Dodd-Frank Act stress tests);
  4. Disclosure
  5. Mandatory Elements
  6. Market Shock
  7. Range of Practice and Supervisory Expectations
  8. Resubmission
  9. Scenarios

The three initial FAQs are only in the first two categories.

Specific FAQs. Under the General category, the FAQs advise firms that implement new accounting standards that CCAR projections should only reflect new standards that were implemented before December 31 of the previous calendar year. Also, firms that make material business changes in the fourth quarter of a year should discuss those changes in their CCAR filings. The Fed might then request additional information.

In the FAQ under Adjustment to Capital Plan, the Fed says bank holding companies that include calling and issuing related capital instruments in their capital plans, but that subsequently decide not to call the instruments, need not issue the planned replacements. This is the case as long as there is no net effect on the relevant class of capital and the BHC is in compliance with the net distribution limit.

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