Thomas Daly

Annual Stress Test OCC Proposed Rule Document Number OCC-2011-0029. While this rule is long overdue for monitoring the capital adequacy of National Banks and Federally Chartered Savings Institutions it is clearly lacking in two respects. The issues I have with the rule are that the planning horizon should be extended beyond the 9 month (3 quarter) planning horizon suggested in the proposed rule; And the inclusion of asset based fair market value (:FMV") reductions not realized should be included in the scenarios. The short planning horizon will allow the regulators to capture the effects of any sudden changes in the economy to the capital adequacy of the financial institutions, but will not allow for any prediction of the effects of systemic changes to the asset base of the institution over a longer period of time. Therefore I would recommend adding a 2 year predictive model using the current data required to be assembled by the regulated institution. The additional costs associated with the single added test would not be burdensome as the majority of the costs of the regulation is in the data gathering not the processing of the data under the scenarios. The inclusion of asset based FMV reductions should help the regulators to capture the effect of unrealized market information on the capital health of federally insured depository institutions. The most recent financial disturbances were exacerbated by the lack of understanding by regulators and the internal auditors of the regulated institutions with respect to the credit default swaps markets. The inclusion of such non-traditional assets in the stress test scenarios will help give some indication of institutions that may be at greater risk than is readily available under the current proposed methodology.