Three banking agencies have finalized “high-level” principles for stress testing at holding companies and insured depositories with more than $10 billion in assets. The stress-test standards require banking organizations to articulate desired performance under stress (e.g., activities that could be terminated, use of government support) and also to consider capital, liquidity and other buffers to ensure they achieve these forward-looking projections even if it requires going beyond regulatory mandates.  The guidance was finalized largely as proposed, with the exceptions of building out the governance requirements into a stand-alone principle and making a few clarifications. Importantly, the agencies relaxed expectations for boards of directors, clarifying that senior management should have the primary responsibility for stress testing implementation and design, while boards will only need to oversee the general effectiveness of the framework and monitor stress testing developments and results.

The full report is available to retainer clients.  To find out how you can sign up for the service, click here.