Federal Regulators Finalize Bank Stress-Testing Rule

Three federal regulatory agencies finalized stress-testing guidance Monday for financial institutions with total assets worth more than $10 billion.

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The ""Federal Reserve"":http://www.federalreserve.gov/, ""FDIC"":http://www.fdic.gov/, and ""Office of the Comptroller of the Currency"":http://www.occ.treas.gov/ (OCC) released the guidance after receiving 17 comment letters from banks, financial advisory firms, and trade groups.

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The agencies stressed the importance of capital and liquidity, saying that systemically important financial institutions should apply stress tests to these areas on a regular basis.

The new rule calls for banks to implement four rules. These include a stress-testing framework that should ""sufficiently capture the banking organization's exposures, activities, and risks,"" plus multiple ""conceptually sound"" stress-testing activities and approaches.

A fifth principle under the rule calls for banks to ""underscore the importance of governance and controls as a key element in a banking organization's stress testing framework.""

The three noted that the guidance also does not implement stress-testing provisions under the Dodd-Frank Act or the capital plan rule.

Stress tests came into fruition after the financial crisis. Regulators devised the Basel III Accords to mandate stress tests for the world's Global Systemically Important Financial Institutions, or G-SIFIs, which include 18 U.S. bank holding companies.