§ 252.15 - Methodologies and practices.

§ 252.15 Methodologies and practices.

Cross Reference

Link to an amendment published at 84 FR 59101, Nov. 1, 2019.

(a) Potential impact on capital. In conducting a stress test under § 252.14, for each quarter of the planning horizon, a bank holding company, savings and loan holding company, or state member bank must estimate the following for each scenario required to be used:

(1) Losses, pre-provision net revenue, provision for credit losses, and net income; and

(2) The potential impact on the regulatory capital levels and ratios applicable to the covered bank, and any other capital ratios specified by the Board, incorporating the effects of any capital action over the planning horizon and maintenance of an allowance for loan losses or adjusted allowance for credit losses, as appropriate, for credit exposures throughout the planning horizon.

(b) Assumptions regarding capital actions. In conducting a stress test under § 252.14, a bank holding company or savings and loan holding company is required to make the following assumptions regarding its capital actions over the planning horizon:

(1) For the first quarter of the planning horizon, the bank holding company or savings and loan holding company must take into account its actual capital actions as of the end of that quarter; and

(2) For each of the second through ninth quarters of the planning horizon, the bank holding company or savings and loan holding company must:

(i) Assume no redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio;

(ii) Assume no issuances of common stock or preferred stock, except for issuances related to expensed employee compensation or in connection with a planned merger or acquisition to the extent that the merger or acquisition is reflected in the company's pro forma balance sheet estimates; and

(iii) Make reasonable assumptions regarding payments of dividends consistent with internal capital needs and projections.

(c)

Controls and oversight of stress testing processes -

(1) In general. The senior management of a

bank holding company, savings and loan holding company, or

state member bank must establish and maintain a system of controls, oversight, and documentation, including policies and procedures, that are designed to ensure that its stress testing processes are effective in meeting the requirements in this subpart. These policies and procedures must, at a minimum, describe the company's stress testing practices and methodologies, and processes for validating and updating the company's stress test practices and methodologies consistent with applicable laws

,

and regulations

, and supervisory guidance

.

(2) Oversight of stress testing processes. The board of directors, or a committee thereof, of a

bank holding company, savings and loan holding company, or

state member bank must review and approve the policies and procedures of the stress testing processes as frequently as economic conditions or the condition of the company may warrant, but no less than

annually

each year that a stress test is conducted. The board of directors and senior management of the

bank holding company, savings and loan holding company, or

state member bank must receive a summary of the results of the stress test conducted under this section.

(3) Role of stress testing results. The board of directors and senior management of a

bank holding company, savings and loan holding company, or

state member bank must consider the results of the stress test in the normal course of business, including but not limited to, the

banking organization

state member bank's capital planning, assessment of capital adequacy, and risk management practices.

[Reg. YY, 79 FR 64045, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 2015; 84 FR 4245, Feb. 14, 2019; 84 FR 59101, Nov. 1, 2019]