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

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).