Dodd-Frank Act Stress Test (DFAST)
Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires state nonmember banks and state savings associations with total consolidated assets of more than $10 billion to conduct annual stress tests. On October 15, 2012, the FDIC published its final annual stress test rule (Part 325), which set out definitions and rules for scope of application, scenarios, reporting, and disclosure. On November 21, 2014, the FDIC published final rules to adjust the timing of the annual stress testing cycle and to clarify the method used to calculate regulatory capital in the stress tests. Beginning in 2016, all covered institutions, as defined in the final rule, with between $10 and $50 billion in assets are required to submit the results of their company-run stress tests to the FDIC by July 31 and publish those results between October 15 and October 31. Covered institutions with $50 billion in assets or more are required to submit the results of their company-run stress tests to the FDIC by April 5 and publish those results between June 15 and July 15. The FDIC will provide the required scenarios to the covered institutions by February 15 of each year.
The results of the company-run stress tests provide the FDIC with forward-looking information used in bank supervision and will assist the agency in assessing the company’s risk profile and capital adequacy. The objective of the annual company-run stress test is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. These stress test results are also expected to support ongoing improvement in a covered institution’s stress testing practices with respect to its internal assessments of capital adequacy and overall capital planning.
Banks between $10 billion and $50 billion
A bank with total assets over $10 billion becomes a “covered bank” for DFAST purposes when its most recent four-quarter average consolidated total assets (using quarter-end Call Report figures) exceeds $10 billion. The date on which a bank becomes a covered bank determines its reporting timeline. 12 CFR § 325.203(b)(3) states:
A state nonmember bank or state savings association that becomes a covered bank on or before March 31 in years following 2015 shall conduct its first annual stress test under this subpart in the stress testing cycle in the next calendar year after the date the state nonmember bank or state savings association becomes a covered bank. A state nonmember bank or state savings association that becomes a covered bank after March 31 in years following 2015 shall conduct its first annual stress test under this subpart in the second calendar year after the date the state nonmember bank or state savings association becomes a covered bank.
End date of quarter in which bank becomes $10 billion covered bank
|First annual stress test cycle||“As-of” date for first stress test||First Reporting Date||First Public Disclosure|
|3/31/16||2017||12/31/2016||7/31/2017||10/15/17 – 10/31/17|
|6/30, 9/30, or 12/31 of 2016||2018||12/31/2017||7/31/2018||10/15/18 – 10/31/18|
Banks over $50 billion
Banks migrating from the $10-$50 billion asset size to over $50 billion are subject to different reporting timelines and reporting requirements. An over $50 billion covered bank is defined as an institution with consecutive four-quarter average total consolidated assets (using Call Report figures) greater than $50 billion. Once the bank breaches this threshold, it is subject to the over $50 billion timeline immediately as of that date. 12 CFR § 325.204(a)(2) states:
Prior to January 1, 2016, an over $50 billion covered bank must conduct a stress test on or before January 5 of each calendar year based on financial data as of September 30 of the preceding calendar year. Beginning January 1, 2016, an over $50 billion covered bank must conduct a stress test on or before April 5 of each calendar year based on financial data as of December 31 of the preceding calendar year.
Quarter bank becomes over $50 billion covered bank
|First year of over $50B stress test||“As-of” date for over $50B stress test||Reporting Date for over $50B bank||Public Disclosure Date|
|Any quarter in 2016||2017||12/31/2016||4/5/2017||6/15/17 – 7/15/17|
The FDIC will release economic and financial market scenarios that are used in the annual company-run stress test under the Dodd-Frank Act no later than February 15. The scenarios include baseline, adverse and severely adverse scenarios. Each scenario includes economic variables, including macroeconomic activity, unemployment, exchange rates, prices, incomes and interest rates. The adverse and severely adverse scenarios are not forecasts, but rather hypothetical scenarios designed to assess the strength and resilience of financial institutions. Note that the scenarios are the same for both the over $50 billion and $10 billion to $50 billion size institutions.
These report templates collect quantitative projections of balance sheet, capital, losses, and income across three or more macroeconomic scenarios, along with qualitative information on methodologies. Covered institutions are required to complete reporting templates using financial information as of December 31 each year.
|Reporting Templates||Reporting Instructions||Notice||Status|
|$10 billion to $50 billion||Instructions||Notice||Final|
|Over $50 billion||Templates||Instructions||Notice||Final|
Disclosure of Annual Stress Test Results
The Annual Stress Test rule requires each covered institution to publish a summary of the results of its annual stress test. The required summary of results may be published on the covered institution’s web site or in any other forum that is reasonably accessible to the public.
$10 to $50 billion covered institution: Effective January 1, 2016, a $10 to $50 billion covered institution must publish a summary of the results of its annual stress test in the period starting October 15 and ending October 31 (for the stress test cycle beginning January 1, 2016, and for all stress tests thereafter).
Over $50 billion covered institution: Effective January 1, 2016, an over $50 billion covered institution must publish a summary of the results of its annual stress test in the period starting June 15 and ending July 15 (for the stress test cycle beginning January 1, 2016, and for all stress tests thereafter). Unless the FDIC determines otherwise, if the over $50 billion covered institution is a consolidated subsidiary of a bank holding company or savings and loan holding company subject to supervisory stress tests conducted by the Board of Governors of the Federal Reserve System, then within the June 15 to July 15 period such covered institution may not publish the required summary of its annual stress test earlier than the date that the Board of Governors of the Federal Reserve System publishes the supervisory stress test results of the covered bank's parent holding company.