The Federal Reserve has finalized new stress-test standards for bank holding companies with assets over $50 billion that will take effect in the first quarter of 2012. The latest tests apply to a wider range of BHCs and are even more stringent than prior ones and, thus, will make it difficult to distribute capital for even those BHCs that are deemed robust by their directors or the market. This heightened discipline results in part from incorporation into the test of the new Basel capital and surcharge requirements for the nineteen largest BHCs, along with a tough new test for the six largest BHCs related to their Eurozone exposure and very tough stress scenarios against which all covered BHCS must compare their performance. The FRB will review BHC capital plans based on data submissions that cover a wide array of factors and will require a strong role from the board and senior management in reviewing plans and underlying assumptions, penalizing firms either through capital restrictions or other penalties if these procedures are found wanting. Although many aspects of the capital-planning exercise are confidential, the FRB will disclose the supervisory stress-test results on a bank-specific basis for the nineteen largest BHCs.
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