On January 22, 2019, Bank Policy Institute submitted a comment letter to the Board of Governors of the Federal Reserve System (Fed), Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation in response to a proposal to tailor stress test and liquidity requirements, and a related Federal Reserve proposal that changes the enhanced prudential standards for large bank holding companies and savings and loan holding companies.
The primary recommendations submitted in the comment letter include:
- Adjust all risk-based indicators annually to account for economic growth so that those indicators retain similar relationships to risk as the U.S. banking industry and the economy expand.
- Immediately eliminate the use of the “adverse” scenario, qualitative assessment and objection framework, and mid-cycle-company-run-test-requirements from Dodd Frank Act Stress Testing (DFAST) and Comprehensive Capital Analysis and Review (CCAR) stress-testing requirements.
- Carefully evaluate the changes contemplated for capital planning and stress testing applicable to Category III and IV firms to ensure they do not result in unintended and adverse consequences and achieve the intended tailoring of prudential standards.
- Simplify the liquidity requirements for Category III firms by using the existing modified Liquidity Coverage Ratio (LCR) and proposed modified Net Stable Funding Ratio (NSFR), instead of subjecting firms to new “reduced” LCR and NSFR requirements.