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Guidance Proposed Guidance on Stress Testing for Banking Organizations with More Than $10 Billion in Total Consolidated Assets

Capital
June 16, 2011
Summary: The federal banking regulatory agencies have jointly issued the attached proposed guidance on stress testing for banking organizations with more than $10 billion in total consolidated assets. The proposed guidance highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks.

Statement of Applicability to Institutions under $1 Billion: The proposed guidance does not apply to institutions with total assets under $1 billion.

Highlights:

The proposed guidance:

  • Applies to banking organizations with consolidated total assets equal to or greater than $10 billion.
  • Highlights four principles that should be part of a banking organization’s stress testing framework. The framework should (1) include activities and exercises that are tailored to the activities of the organization; (2) employ multiple conceptually sound activities and approaches; (3) be forward-looking and flexible; and (4) be clear, actionable, well-supported, and used in the decision-making process.
  • Emphasizes the importance of stress testing as a tool for assessing risk and addressing a range of potential adverse outcomes.
  • Discusses four types of stress tests: scenario analysis; sensitivity analysis; enterprise-wide stress testing; and reverse stress testing.
  • Notes that stress testing should be commensurate with an organization’s size, complexity, and business profile.
  • Discusses the importance of stress testing in capital and liquidity planning.

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2011/index.html

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/index.html

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).

Additional Related Topics:

  • Risk-Based Capital Rules
  • 12 CFR Part 325
  • Basel II
  • Market Risk
Attachment(s)

Last Updated: June 16, 2011