Reuters: Regulatory News: UPDATE 1-U.S. bank regulators issue stress test principles

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UPDATE 1-U.S. bank regulators issue stress test principles May 14th 2012, 16:38 Mon May 14, 2012 12:38pm EDT * Guidance applies to banks with more than $10 bln in assets * Is separate from tests required by Dodd-Frank * Does not apply to community banks By Dave Clarke WASHINGTON, May 14 (Reuters) - U.S. banking regulators released guidance that banks with more than $10 billion in assets should follow when conducting internal s t ress tests to identify weaknesses in their operations and on their balance sheets. The guidance issued on Monday focuses on five principles, including making sure all risks facing an institution are captured by the tests and that the results are clear and can be used to take specific steps should problems be discovered. The guidance is separate from the stress tests required by the 2010 Dodd-Frank financial oversight law as well as one administered by the Federal Reserve to determine if large banks have enough capital to withstand financial and economic shocks. The Fed's capital test is also used by the central bank to determine whether large banks can increase dividends or buy back some of their stock. The results of this year's test were released in March. Banking agencies said the guidance released on Monday is intended to ensure that banks incorporate all the different tests into their overall risk management strategies. "The 2007-2009 financial crisis further underscored the need for banking organizations to incorporate stress testing into their risk management, as banking organizations unprepared for stressful events and circumstances can suffer acute threats to their financial condition and viability," the banking agencies said in a release. The guidance was issued by the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. Banks have grumbled about the multiple testing requirements they face. Regulators have said, however, they plan to coordinate all of the different stress tests and make sure they are consistent with one another. Community banks have raised concerns that the stress tests will eventually apply to them and would prove costly and unnecessary given the simplicity of their operations when compared to their larger rivals. To allay this fear, regulators issued a statement on Monday stating the stress testing guidance does not apply to small banks. Link this Share this Digg this Email Reprints

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