The banking regulators announced that they are contemplating
delaying the implementation of the stress test for the mid-size
banks and financial institutions (with consolidated assets of
$10-50 billion). This comes as a major relief for these
As part of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the Federal Reserve Board, the Office of the
Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC) are authorized to conduct annual capital
Now in a coordinated effort, these regulators are planning to
withhold the final rule making and immediate execution of the
proposed rules till September 2013. Mid-size banks would have to
start with the stress test immediately if the final rules related
to it were announced.
One of the main pre-conditions for implementation of the rule is
that these companies should have a strong and efficient system in
place to conduct the stress test.
However, many concerns were put forward regarding the resources
and the ability of the companies to conduct the tests in the short
span between the declaration of the final rule and onset of the
stress test procedure. Hence, the proposed delay will give the
companies sufficient time to put the required system in place for
conducting the stress test.
(CIT): ETF Research Reports
(ETFC): ETF Research Reports
(FHN): ETF Research Reports
(FNFG): ETF Research Reports
(SNV): ETF Research Reports
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Approximately 65 banks and financial institutions - including
CIT Group Inc.
First Niagara Financial Group Inc.
Synovus Financial Corporation
E*TRADE Financial Corporation
First Horizon National Corporation
) - will go through the stress test.
The Fed had proposed the stress test rules in December 2011 and
stated that once the final rules are announced, the major banks
would have to implement them with immediate effect. Likewise, in
January 2012, the OCC and the FDIC came up their proposed set of
rules for conducting annual stress test for mid-size banks and
other financial institutions. However, the final rule for the
stress test for mid-size financial companies is yet to be
Additionally, the OCC is planning to go ahead with its annual
stress test for larger banks and financial institutions (assets of
more than $50 billion) from this year itself. However, the
regulator has the right to grant permission to these banks to delay
the capital adequacy stress test, albeit on a case-by-case basis.
Authorized under the Dodd-Frank Act, the stress tests were first
introduced after the 2008 financial crisis. The stress test on the
large banks is being conducted on an annual basis by the Fed since
The economic benefits of the stress tests are indisputable. These
would help build up weak capital levels of banks, which are a
looming threat to the economy. Also, this could ultimately
translate into less involvement of the taxpayers' money for the
bailout of troubled financial institutions.