The three top U.S. banking regulators are issuing guidance to banks with assets of $10 billion or more on what officials expect to see in annual stress tests mandated by new financial reform laws.
The Dodd-Frank Act, a sweeping set of financial reforms passed last July, requires banks both large and small to run their loans, securities portfolios, and funding operations through various economic scenarios, including periods of rising unemployment and economic decline. Regulators are now setting the standards for smaller banks. About 120 banks supervised by the Fed will be affected.
The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. today described broad guidelines for what they would like to see in the tests, according to a notice issued in Washington.
“An effective stress-testing framework covers a banking organization’s full set of material activities, exposures, and risks, whether on or off the balance sheet,” the proposed guidance said.
Earlier this year, the Fed asked the 19 largest banks to run their capital plans through a stress test before allowing them to boost dividends.
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