Regulators Clarify Expectations for Stress Testing by Community Banks
The Federal Reserve Board and other U.S. banking regulators issued a statement clarifying that community banks "are not required or expected" to conduct the same types of stress tests required of larger organizations.
The May 14 press release followed the issuance of final guidance on stress-testing practices at larger banks—classified as those with more than $10 billion in assets. The guidance highlighted the importance of stress testing as part of larger organizations' risk management practices. Additionally, the Federal Reserve earlier this year conducted stress tests of the 19 largest U.S. banks as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Board, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, noted that these initiatives "are raising some questions on the part of community bankers regarding supervisory expectations for stress testing." Although community banks will not be required to undergo the same types of stress tests, the regulators did note that all banks, regardless of size, should be able to "analyze the potential impact of adverse outcomes in their financial conditions."
May 24, 2012