US Federal Reserve Board Proposes Rule to Modify Capital Planning and Stress Testing Regulations

The US Board of Governors of the Federal Reserve System proposed a rule modifying its regulations for capital planning and stress testing. Specific changes include altering the timing for several requirements that have not yet been integrated into the stress testing framework. Notably, banks subject to the supplementary leverage ratio would not be required to incorporate the ratio into their stress testing until the 2017 cycle. Additionally, all banks would continue to use standardized risk-weighted assets for capital planning and stress testing while the use of advanced approaches risk-weighted assets (applicable to banks with more than $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures) would be delayed indefinitely.

The proposal would also remove the requirement that banking organizations calculate a tier 1 common capital ratio. Currently, banks are required to project post-stress regulatory capital ratios in their stress tests using the tier 1 common capital ration, but as the common equity tier 1 capital ratio becomes fully phased in under the Federal Reserve Board’s regulatory capital rule, it would generally require more capital than the tier 1 common capital ratio. The Federal Reserve Board only expected the tier 1 common capital ratio to remain in force until the common equity tier 1 capital requirement was adopted.

The proposed changes would take effect for the 2016 capital plan and stress testing cycles. Comments on the proposal will be accepted through September 24, 2015. The Federal Reserve Board is also currently considering several issues related to its capital plan and stress testing rules and any modifications relating to these issues will be effected through a separate rulemaking, with changes thereunder taking effect no earlier than the 2017 cycle.
 

View the press release.

View the proposed rule.