WASHINGTON ― Bank regulators on Tuesday voted to release a proposal for how banks with more than $10 billion in assets should conduct stress tests annually to determine whether they can withstand a financial shock.
The tests are required by the 2010 Dodd-Frank financial oversight law, which has established stress tests as a key component of how regulators will gauge the health of the banking industry.
The largest U.S. banks are facing several regulatory tests of their operations.
The Federal Reserve, for instance, has to establish stress tests for bank holding companies with more than $50 billion in assets and the agency released a proposal for this requirement in December.
The Fed is also currently putting banks with more than $50 billion in assets through separate tests to gauge whether they have enough capital. The results of these tests are expected in March.
Regulators have said they will attempt to coordinate the different testing requirements as much as possible.
On Tuesday the board of the Federal Deposit Insurance Corp voted to 4 to 0 to approve the proposal for banks with more than $10 billion in assets. It will be out for 60 days for public comments.
“It’s an important forward looking mechanism for institutions to identify risks and act accordingly,” acting FDIC Chairman Martin Gruenberg said.
FDIC staff said it is not yet clear whether the first of these tests will be held in 2012 or 2013. The timing will depend on the comments received and when the Fed finalizes its December proposal for stress testing the largest banks.
The tests are intended to give banks and regulators a better idea of whether banks can weather a crisis and what steps they may have to take to strengthen their operations.
Under Tuesday’s proposal, regulators each year would provide banks with stress scenarios in November. The banks would run the tests and report back to regulators in January.