The Office of the Comptroller of the Currency (OCC) released last week the 2017 economic and financial market scenarios that will be employed as stress tests for institutions with more than $10 billion in assets.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires banks and certain other financial companies with assets totaling more than $10 billion to conduct annual stress tests. The OCC provides scenarios that these companies must use to conduct the stress tests by Feb. 15th of each year.
The stress test scenarios include baseline, adverse, and severely adverse scenarios. Each scenario includes economic variables, including macroeconomic activity, unemployment, exchange rates, prices, incomes and interest rates.
The adverse and severely adverse scenarios are hypothetical situations used to assess the strength of financial institutions in difficult circumstances. The scenarios are expected to be the same for institutions with over $50 billion or more in assets as they are for companies with between $10 billion to $50 billion in assets.
The companies must publish a summary of the results of its annual stress tests on its web site or in any other forum that is accessible to the public.
The results of the stress tests help the OCC in assessing a company’s risk profile and capital adequacy and provide the agency with data used for bank supervision.