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Dodd-Frank Act Stress Test 2016: Supervisory Stress Test Methodology and Results

Background on Dodd-Frank Act Stress Testing

In the wake of the financial crisis, Congress enacted the Dodd-Frank Act,5 which, among other provisions, requires the Federal Reserve to conduct an annual stress test of BHCs with total consolidated assets of $50 billion or more as well as nonbank financial companies designated by the FSOC for supervision by the Board (supervisory stress test).6

The Dodd-Frank Act also requires each of these "covered" companies to conduct its own stress tests, and report its results to the Federal Reserve, twice a year (company-run stress test).7 The Federal Reserve first adopted rules implementing these requirements in October 2012 and most recently modified these rules in December 2015.8

In conducting the supervisory stress tests, the Federal Reserve projects balance sheets, RWAs, net income, and resulting post-stress capital levels and regulatory capital ratios over a nine-quarter "planning horizon," generally using a set of capital action assumptions prescribed in the Dodd-Frank Act stress test rules (see Capital Action Assumptions and Regulatory Capital Ratios). The projections are based on three macroeconomic scenarios required by the Dodd-Frank Act (baseline, adverse, and severely adverse) and developed annually by the Federal Reserve.9

For the "annual" company-run stress test, the BHCs use the same planning horizon, capital action assumptions, and scenarios10 as those used in the supervisory stress test.11 The use of common capital action assumptions and scenarios enhances the comparability of the supervisory and company-run results. The results of the company-run stress test must be submitted to the Federal Reserve. In addition, covered companies must also conduct a "mid-cycle" test and report the results to the Federal Reserve.

Together, the Dodd-Frank Act supervisory stress tests and the company-run stress tests are intended to provide company management and boards of directors, the public, and supervisors with forward-looking information to help gauge the potential effect of stressful conditions on the ability of these large banking organizations to absorb losses, while meeting obligations to creditors and other counterparties, and continuing to serve as credit intermediaries. The Dodd-Frank Act requires each BHC to disclose a summary of its company-run stress test results and also requires the Federal Reserve to disclose a summary of its supervisory stress test results.12


5. Pub. L. No. 111-203, 124 Stat. 1376 (2010). Return to text

6. See 12 USC 5365(i)(1). The 33 BHCs that participated in the 2016 Dodd-Frank Act supervisory stress test are Ally Financial Inc.; American Express Company; BancWest Corporation; Bank of America Corporation; The Bank of New York Mellon Corporation; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; Capital One Financial Corporation; Citigroup, Inc.; Citizens Financial Group, Inc.; Comerica Incorporated; Deutsche Bank Trust Corporation; Discover Financial Services; Fifth Third Bancorp; The Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; Huntington Bancshares Inc.; JPMorgan Chase & Co.; Keycorp; M&T Bank Corporation; Morgan Stanley; MUFG Americas Holdings Corporation; Northern Trust Corp.; The PNC Financial Services Group, Inc.; Regions Financial Corporation; Santander Holdings USA, Inc.; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; TD Group US Holdings LLC; Wells Fargo & Company; and Zions Bancorporation. Certain BHCs with $50 billion in assets are not subject to the supervisory stress test this year. CIT Group Inc. is not participating in supervisory or BHC-run Dodd-Frank Act stress testing but is required to submit a capital plan under the capital plan rule for review by the Federal Reserve. CIT Group Inc. will be subject to Dodd-Frank stress testing beginning January 1, 2017. See 12 CFR 225.8(c); 12 CFR 252.43(b).

The legal name of BancWest Corporation was First Hawaiian, Inc., at the time that the DFAST Supervisory Stress Test Methodology and Results was published. However, the entity is referred to as BancWest Corporation throughout the document, as it will revert to being called BancWest Corporation on July 1, 2016. Return to text

7. Under the Dodd-Frank Act, all financial companies with more than $10 billion in total consolidated assets that are supervised by a primary federal financial regulatory agency are required to conduct an annual company-run stress test. However, only the covered companies are subject to the additional mid-cycle stress test and the supervisory stress test. See 12 USC 5365(i)(2). Return to text

8. 12 CFR part 252, subparts E and F; see 77 Fed. Reg. 62,378; Capital Plan and Stress Test Rules, 79 Fed. Reg. 64,026 (October 27, 2014),; Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules, 79 Fed. Reg. 13,498 (March 11, 2014),; Capital Plan and Stress Test Rules, 79 Fed. Reg. 64,026 (October 27, 2014),; and Amendments to the Capital Plan and Stress Test Rules, 80 Fed. Reg. 75,419 (December 2, 2015), Return to text

9. The Board has issued a policy statement regarding its process for designing the scenarios. See Policy Statement on the Scenario Design Framework for Stress Testing, 78 Fed. Reg. 71,435 (November 29, 2013), (12 CFR part 252, appendix A). Return to text

10. Under the stress test rules, the Federal Reserve was required to provide the scenarios to companies no later than February 15, 2016, for DFAST 2016. See 12 CFR 252.54(b)(1). Return to text

11. See 12 CFR 252.54. Return to text

12. 12 USC 5365(i)(1)(B)(v) and 5365(i)(2)(C)(iv). Return to text

Last update: August 9, 2016

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