I. INTRODUCTION
The Federal banking agencies have issued final supervisory guidance regarding stress-testing practices at banking organizations with total consolidated assets of more than $10 billion.
The guidance highlights the importance of stress testing at banking organizations as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips it to address a range of adverse outcomes. The recent financial crisis underscored the need for banking organizations to incorporate stress testing into their risk management practices, demonstrating that banking organizations unprepared for particularly adverse events and circumstances can suffer acute threats to their financial condition and viability.
The guidance builds upon previously issued supervisory guidance that discusses the uses and merits of stress testing in specific areas of risk management. The guidance outlines general principles for a satisfactory stress testing framework and describes various stress testing approaches and how stress testing should be used at various levels within an organization. The guidance also discusses the importance of stress testing in capital and liquidity planning and the importance of strong internal governance and controls as part of an effective stress-testing framework. Institutions subject to the stress-testing requirements may review the guidance by going to www.fdic.gov and searching for "PR-53-2012."
II. STATEMENT TO CLARIFY SUPERVISORY EXPECTATIONS FOR STRESS TESTING BY COMMUNITY BANKS
Community banks are not required or expected to conduct the types of stress testing specifically articulated in the large bank stress testing guidance, which are directed at larger organizations. In particular, community banks are not required or expected to conduct the enterprise-wide stress tests required of larger organizations under the capital plan rule, the proposed rules implementing Dodd-Frank Act stress testing requirements, or as described above in the stress testing guidance for organizations with more than $10 billion in total consolidated assets.
The Federal banking agencies continue to emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes on their financial condition. Certain portions of existing interagency guidance applicable to all banking organizations discuss addressing potential adverse outcomes as part of sound risk management practices. The agencies note that such existing guidance, including that covering interest rate risk management, commercial real estate concentrations, and funding and liquidity management (among others), continues to apply.