US Federal Reserve lays out stress-tests for American banks
October 11, 2012, 12:11 am TWN
WASHINGTON--The U.S. Federal Reserve announced new rounds of stress-tests for big American banks on Tuesday, part of efforts to end the excessive risk-taking that led Wall Street to near-collapse in 2008.
A first round will be conducted in the coming months under the control of the central bank, followed by a second round by the banks themselves using scenarios set by the Fed, it said in a statement.
Tests will eventually be done on all banks with more than US$50 billion in assets, but this year they will apply only to the 19 largest banks that the Fed tested in 2011.
Other banks in this US$50 billion-plus category will be submitted to the tests beginning in September 2013, the central bank said.
The announcement came after two regulators, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), issued final rules on stress-tests prescribed by the Dodd-Frank Wall Street reforms.
“The Federal Reserve will begin conducting supervisory stress tests under the final rules this fall for the 19 bank holding companies that have already been tested,” the Fed said.
The banks will test their capital ratios against three economic scenarios, including a worst-case scenario, Fed officials said, speaking on condition of anonymity.
In the future, the Fed's stress-tests will be conducted on non-banking financial institutions that it determines are systemically important to the financial system.
The central bank said it was still identifying those companies.
Under the terms of the new rules, several dozen banks with more than US$50 billion in assets, including the 19 “too-big-to-fail” banks, are to conduct their own stress-tests based on hypotheses ordered by regulators.
The authorities expect to publish the scenarios for the two types of tests by end-November.
The final rules published Tuesday deal with implementation of two directives of the Dodd-Frank law: one imposes stress-tests on the biggest financial institutions as well as internal stress-tests done on a half-year basis, and the other orders annual tests on banks with assets of more than US$10 and less than US$50 billion.
The Fed said the results of the two types of stress-tests will be published by the end of March.
The FDIC and the OCC said the results of the internal stress-tests should be released in January.
For banks with assets between US$10 billion and US$50 billion, the internal stress-tests are to begin in October 2013.
As of June 30, there were 108 institutions with more than US$10 billion in assets, according to the FDIC.