Company-Run Stress Tests Required by the Dodd-Frank Act

Statement of Applicability to Institutions Under $1 Billion in Total Assets: This Financial Institution Letter is not applicable to FDIC-supervised banks and savings associations with total assets of less than $1 billion.

The proposed rule:

• Defines "stress test" as a process to assess the potential impact of economic and financial conditions on the earnings, losses, and capital of a covered bank over a nine- quarter planning horizon, taking into account the current condition of the bank and its risks, exposures, strategies, and activities.
• Requires covered state nonmember banks to conduct annual capital adequacy stress tests using financial data as of September 30, based on three scenarios to be identified annually by the FDIC.
• Requires covered banks to report the results of the stress tests to the FDIC by the January 5 following the September 30 as-of date, in a form to be developed in coordination with the other banking agencies that would be the subject of a future request for comment.
• Requires covered banks to publish a summary of the results within 90 days after the report to the FDIC.
• Requires the public summary to include projections of losses, pre-provision net revenue, loss reserves, net income, and pro forma capital levels and ratios over the planning horizon under each scenario, and a general description of the risks covered and stress testing methodologies used.
• States that the FDIC intends to coordinate with the other primary federal financial regulatory agencies on the development of the scenarios.
• Seeks comment on the feasibility of the proposed timelines and the challenges institutions may experience.

Comments are due by March 23, 2012.

Suggested 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 http://www.fdic.gov/news/financial-institution-letters/2012/index.html

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

Paper copies 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).