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From Banking and Finance Law Daily, October 26, 2017

OCC proposes revising its ‘Annual Stress Test’ rule

By Thomas G. Wolfe, J.D.

The Office of the Comptroller of the Currency has proposed several technical and conforming changes to its rule on annual stress testing. First, the OCC seeks to revise the Annual Stress Test rule—12 CFR Part 46—by modifying "the range of possible ‘as-of’ dates used in the global market shock component" to conform to changes recently made by the Federal Reserve Board to the Fed’s own stress testing regulations. Second, the rule would change "the transition process" for covered institutions with $50 billion or more in assets, based on whether the pertinent covered institution reaches or exceeds the $50 billion threshold amount before or after September 30 of a calendar year. Comment on the proposed rule must be received by the OCC within 60 days after the proposal is published in the Federal Register.

According to the OCC, in keeping with the Dodd-Frank Act and to minimize the regulatory burden for financial institutions, the proposal seeks to ensure that the OCC’s stress testing regulation "remains consistent and comparable to the regulations enacted by other regulatory agencies," including the Fed.

Range of ‘as of’ dates. Under the current Annual Stress Test rule, the OCC may require a covered institution with significant trading activities to include trading and counterparty components in its adverse and severely adverse scenarios. Typically, the trading and counterparty position data to be used in this component is "as of" a date between January 1 and March 1 of a calendar year.

To reflect the same changes the Fed made to its own stress testing rule, the OCC now seeks to extend the range to "run from October 1 of the calendar year preceding the year of the stress test to March 1 of the calendar year of the stress test." According to the OCC, extending this range would increase the regulator’s flexibility to select an appropriate "as of" date.

Transition for covered institutions. In addition, the proposed rule would change "the transition process" for covered institutions with $50 billion or more in assets. Under the proposal, a covered institution that becomes an "over $50 billion covered institution," as defined by the regulation, before September 30 would become subject to the requirements applicable to an "over $50 billion covered institution" beginning on January 1 of the second calendar year after the covered institution attained its new status. Similarly, a covered institution that becomes an "over $50 billion covered institution" after September 30 would become subject to the requirements applicable to an "over $50 billion covered institution" beginning on January 1 of the third calendar year after the covered institution attained its new status.

The OCC also notes that its proposal would remove obsolete transition language and would make other technical changes to clarify the requirements of the Annual Stress Test rule.

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