Dodd-Frank Stress Tests: Federal Reserve Issues Summary Instructions for Dodd-Frank Company-Run, Mid-Year Stress Tests

Sullivan & Cromwell
Date Published:
05/20/2013
Last week, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued summary instructions for the 2013 company-run, mid-year stress tests required by Section 165(i)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Under applicable Federal Reserve regulations, bank holding companies with total consolidated assets of $50 billion or more are required to conduct these mid-year stress tests using company-generated baseline, adverse and severely adverse macroeconomic scenarios. For the 2013 mid-year cycle, however, only the 18 bank holding companies that participated in the Federal Reserve’s 2009 Supervisory Capital Assessment Program are required to conduct mid-year stress tests. All other bank holding companies with consolidated assets of $50 billion or more, as well as designated systemically important non-bank financial companies, will conduct their mid-year company-run stress tests beginning in 2014. For the 2013 cycle, covered companies must report their results to the Federal Reserve no later than July 5, 2013 and publicly disclose a summary of the results under the severely adverse scenario in the period between September 15 and September 30, 2013. The 2013 summary instructions generally are consistent with the Federal Reserve’s final Stress Test Rules but provide additional guidance in several respects, including: describing in greater detail the required content of the public disclosure of the mid-year stress test results; providing additional details with respect to the methodologies and capital distribution assumptions covered companies must employ in developing their scenarios and running the required stress tests; and providing specific instructions on the use of Form FR Y-14A for reporting mid-year stress test results to the Federal Reserve. In addition, the 2013 summary instructions indicate that although the mid-year company-run stress tests are not part of the Federal Reserve’s Comprehensive Capital Analysis and Review Program, the Federal Reserve “will incorporate information from the companies’ mid-cycle stress tests into its ongoing assessment of covered companies through the normal supervisory process.”