Eighteen large U.S. bank holding companies are required to submit the results of their company-run, midyear stress tests to the Federal Reserve on July 5, the Federal Reserve said in instructions to those firms Monday.
The Dodd-Frank Wall Street Reform and Consumer Protection Act required that large bank holding companies and non-bank financial institutions that are designated for Federal Reserve supervision by the Financial Stability Oversight Council conduct two stress tests each year. In the midyear test, which is being conducted for the first time in 2013, each firm develops its own baseline, adverse, and severely adverse scenarios to best reflect its individual operations and risks. In the annual Dodd-Frank Act test earlier in the year, the firms used scenarios developed by the Federal Reserve and the Federal Reserve also conducted its own supervisory stress tests of the institutions.
Each firm in the midyear test is required to release the results produced under its severely adverse scenario, helping promote market discipline and understanding of the financial conditions and risks of individual firms, between September 15 and September 30.
The midyear stress tests mark another important step in the Federal Reserve's work in ensuring that large financial firms have robust capital planning processes and adequate capital so that they can continue to lend to households and businesses even during adverse economic and financial circumstances. Federal Reserve supervisors will incorporate the midyear stress tests into their ongoing assessment of the firms, but will not be measuring the stress test results against specific capital regulatory minimums.
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