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.
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.
FDIC-Supervised Banks (Commercial and Savings)