U.S. regulators are seeking comment on proposed stress-test guidelines for about 70 of the nation’s midsized banks as more lenders face an annual check on their ability to withstand a financial shock.
Lenders with assets of $10 billion to $50 billion such as First Niagara Financial Group Inc. (FNFG) and units of American Express Co. (AXP) or UBS AG could be subjected to the tests, outlined in a statement released by the regulators today. The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said their guidance would account for differences such as risk profile and “business mix.”
The guidelines are tied to a test regimen established by the Dodd-Frank Act to improve the safety of the banking system after its near collapse in 2008. Banks with more than $50 billion in assets already undergo the yearly exams, while mid-sized firms were given an extension until March 2014. Unlike the ones run by the Fed on the 18 largest firms, these tests would be self-administered.
“Companies must assess the potential impact of a minimum of three macroeconomic scenarios -- baseline, adverse, and severely adverse on their consolidated losses, revenues, balance sheet (including risk-weighted assets), and capital,” according to the proposed guidance. “Companies should apply each scenario across all business lines and risk areas so that they can assess the effect of a common scenario on the entire enterprise.”
FDIC statistics show 72 institutions in this asset category, including American Express Bank FSB. The public comment period on the proposal ends Sept. 25.
The Fed gave passing marks to 17 of 18 banks in March, saying those companies could withstand a deep recession while maintaining the capital at the regulatory minimum.
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