Hypothetical economic scenarios for use in the upcoming stress tests for covered institutions with total consolidated assets of more than $250 billion were released Friday by the Federal Deposit Insurance Corp. (FDIC).
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires certain financial companies, including certain state nonmember banks and state savings associations, to conduct stress tests. The asset threshold of institutions required to conduct stress tests rose from $10 billion to $250 billion under the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155).
The supervisory scenarios include baseline and severely adverse scenarios. The baseline scenario is in line with a survey of private sector economic forecasters. The severely adverse scenario is not a forecast but a hypothetical scenario designed to assess the strength and resilience of financial institutions.
Each scenario includes 28 variables – such as gross domestic product, the unemployment rate, stock market prices, and interest rates – covering domestic and international economic activity.
The FDIC said it coordinated with the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) in developing and distributing the scenarios. The Fed and the OCC released the scenarios Feb. 6.
FDIC Releases Economic Scenarios for 2020 Stress Testing
RR: 2020 stress-test scenarios released by Fed; deadline for banks to submit self-test results is April 6 (Feb. 6, 2020)
RR: OCC releases 2020 stress-test scenarios; self-test results due to agency April 5 (Feb. 7, 2020)