Multiplying Stress-Test Rules Prompt Fears of Inconsistency

By Joe Adler

The sheer number of varying stress test requirements — which may differ by a bank’s asset size, business or charter choice — is raising concerns about whether regulators will be able to consistently apply the rules to the largest banks. Stress tests were already a major part of the government’s crisis response in mid-2009, but the Dodd-Frank Act added additional requirements on top of the equation. The reform law essentially institutes three different tests for large institutions and involves multiple regulators to implement them. But, rather than requiring a joint rule, the law calls on agencies to each draft a separate regulation for their respective institutions. The three bank regulators have each issued similar but different proposals. Observers said while the agencies are working to ensure consistency across the board, failure to do so will make the rules difficult for institutions to navigate. “I’m still trying to count them,” Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., said of the various stress test requirements. “It’s great that they are aware of the potential of multiple and even conflicting stress tests. But the challenge is to be sure that the actual implementing rules address this.”

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