New Fed Reserve Rules Require US Bank Holding Companies to Conduct Stress Tests, Early Remediation

The Federal Reserve has recently issued new rules that would strengthen regulation and supervision of large US bank holding companies and systemically important nonbank financial firms.

 

These new rules address the following issues:

 

 

The rules would cover those requirements mandated by the Dodd Frank Act.

 

The proposed rules generally apply to:

Savings and loan holding companies (SLHCs) would not be subject to the requirements included in these proposed rules, except for certain stress test requirements.

 

The Federal Reserve plans to issue rules covering foreign banking organizations and SLHCs later.

 

The proposed risk-based capital requirements and leverage limits will be implemented in two phases, with the first phase already effective from November 2011 when the Fed issued the capital plan rule. This rule expects companies to:

 

 

The second phase would include a Federal Reserve rule to implement a risk-based capital surcharge based on the framework and methodology developed by the Basel Committee on Banking Supervision.

 

The Federal Reserve expects to implement these requirements in two phases as well:

 

 

 

 

Remediation requirements would be applied to all those companies and institutions covered by the proposed rules. These requirements would ensure that all financial weaknesses are addressed at an early stage.

 

According to the proposed rules, the triggers for remediation, such as capital levels, stress test results, and risk management weaknesses, will have to be calibrated to be forward-looking in some cases.

 

Required remediation actions would depend on the severity of the trigger, but could include: