(a) Potential impact
on capital. In conducting a stress test under section 252.14,
for each quarter of the planning horizon, a state member bank must
estimate the following for each scenario required to be used:
(1) Losses, pre-provision net revenue,
provision for credit losses, and net income; and
(2) The potential impact on the regulatory
capital levels and ratios applicable to the covered bank, and any
other capital ratios specified by the Board, incorporating the effects
of any capital action over the planning horizon and maintenance of
an allowance for loan losses or adjusted allowance for credit losses,
as appropriate, for credit exposures throughout the planning horizon.
(b) Controls and oversight
of stress testing processes.
(1) In general. The senior management of a state member bank must establish and
maintain a system of controls, oversight, and documentation, including policies
and procedures, that are designed to ensure that its stress testing
processes are effective in meeting the requirements in this subpart.
These policies and procedures must, at a minimum, describe the company’s
stress testing practices and methodologies, and processes for validating
and updating the company’s stress test practices and methodologies
consistent with applicable laws and regulations.
(2) Oversight
of stress testing processes. The board of directors, or a committee
thereof, of a state member bank must review and approve the policies
and procedures of the stress testing processes as frequently as economic
conditions or the condition of the company may warrant, but no less
than each year that a stress test is conducted. The board of directors
and senior management of the state member bank must receive a summary
of the results of the stress test conducted under this section.
(3) Role
of stress testing results. The board of directors and senior
management of a state member bank must consider the results of the
stress test in the normal course of business, including but not limited
to, the state member bank’s capital planning, assessment of capital
adequacy, and risk management practices.
