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Dodd-Frank Act Stress Test 2015: Supervisory Stress Test Methodology and Results

Background on Dodd-Frank Act Stress Testing

In the wake of the recent financial crisis, Congress enacted the Dodd-Frank Act.2 Under the Dodd-Frank Act, the Federal Reserve is required to conduct an annual stress test of BHCs with total consolidated assets of $50 billion or more as well as nonbank financial companies designated by the FSOC for supervision by the Board (supervisory stress test).3

The Dodd-Frank Act also requires each of these "covered" companies to conduct its own stress tests and report its results to the Federal Reserve twice a year (company-run stress test).4 The Federal Reserve first adopted rules implementing these requirements in October 2012 and most recently modified these rules in October 2014.5

In conducting the supervisory stress tests, the Federal Reserve projects balance sheet, RWAs, net income, and resulting post-stress capital levels and regulatory capital ratios over a nine-quarter "planning horizon," generally using a set of capital action assumptions prescribed in the Dodd-Frank Act stress test rules (see Capital Action Assumptions and Regulatory Capital Ratios). The projections are based on three supervisory macroeconomic scenarios required by the Dodd-Frank Act (baseline, adverse, and severely adverse) and created annually by the Federal Reserve.

For the "annual" company-run stress test, the BHCs use the same planning horizon, capital action assumptions, and scenarios 6 as those used in the supervisory stress test.7 The use of common capital action assumptions and scenarios enhances the comparability of the supervisory and company-run results. The results of the company-run stress test must be submitted to the Federal Reserve. In addition, covered companies must also conduct a "mid-cycle" test and report the results to the Federal Reserve.

Together, the Dodd-Frank Act supervisory stress tests and the company-run stress tests are intended to provide company management and boards of directors, the public, and supervisors with forward-looking information to help gauge the potential effect of stressful conditions on the ability of these large banking organizations to absorb losses, while meeting obligations to creditors and other counterparties, and continuing to serve as credit intermediaries. To ensure this information is readily available, the Dodd-Frank Act requires each BHC to disclose a summary of its company-run stress test results and also requires the Federal Reserve to disclose a summary of its supervisory stress test results.8


References

2. See 12 USC 5365(i)(1). Return to text

3. The 31 BHCs that participated in the 2015 Dodd-Frank Act supervisory stress test are Ally Financial Inc.; American Express Company; Bank of America Corporation; The Bank of New York Mellon Corporation; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; Capital One Financial Corporation; Citigroup, Inc.; Citizens Financial Group, Inc.; Comerica Incorporated; Deutsche Bank Trust Corporation; Discover Financial Services; Fifth Third Bancorp; The Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; Huntington Bancshares Inc.; JPMorgan Chase & Co.; Keycorp; M&T Bank Corporation; Morgan Stanley; MUFG Americas Holdings Corporation; Northern Trust Corp.; The PNC Financial Services Group, Inc.; Regions Financial Corporation; Santander Holdings USA, Inc.; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; Wells Fargo & Company; and Zions Bancorporation. Return to text

4. Under the Dodd-Frank Act, all financial companies with more than $10 billion in total consolidated assets that are supervised by a primary federal financial regulatory agency are required to conduct an annual company-run stress test. However, only the covered companies are subject to the additional mid-cycle stress test and the supervisory stress test. Return to text

5. 12 CFR part 252, subparts E and F; see 77 FR 62378 (October 12, 2012); 79 FR 64026 (October 27, 2014); 79 FR 13498 (March 11, 2014); and 79 FR 64026 (October 27, 2014). Return to text

6. Under the stress test rules, the Federal Reserve was required to provide the scenarios to companies no later than November 15, 2014, for DFAST 2015. See 12 CFR 252.54(b)(1). Return to text

7. 12 CFR 252.156(b). Return to text

8. 12 USC 5365(i)(1)(B)(v). Return to text

Last update: March 31, 2015

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