4-787.4

SECTION 252.44—Analysis Conducted by the Board

(a) In general.

(1) The Board will conduct an analysis of each covered company’s capital, on a total consolidated basis, taking into account all relevant exposures and activities of that covered company, to evaluate the ability of the covered company to absorb losses in specified economic and financial conditions.

(2) The analysis will include an assessment of the projected losses, net income, and pro forma capital levels and regulatory capital ratios and other capital ratios for the covered company and use such analytical techniques that the Board determines are appropriate to identify, measure, and monitor risks of the covered company that may affect the financial stability of the United States.

(3) In conducting the analysis, the Board will not incorporate changes to a firm’s business plan that are likely to have a material impact on the covered company’s capital adequacy and funding profile in its projections of losses, net income, pro forma capital levels, and capital ratios.

(b) Economic and financial scenarios related to the Board’s analysis. The Board will conduct its analysis using a minimum of two different scenarios, including a baseline scenario and a severely adverse scenario. The Board will disclose proposed scenarios by January 10 of the calendar year in which the stress test is performed, and will provide for at least a 30-day period for public input. The Board will disclose the final scenarios by no later than February 28 of that year in which the stress test is performed, except with respect to trading and counterparty or any other components of the scenarios and any additional scenarios that the Board will apply to conduct the analysis, which will be communicated by no later than March 1 of that year. The data used in any trading and counterparty component of the scenarios must be as of a date selected by the Board that is no earlier than April 1 of the calendar year one year prior to the year in which the stress test is performed and that precedes January 1 of the year in which the stress test is performed. Unless otherwise determined by the Board, the as-of date for any trading and counterparty component of the scenarios will be communicated by the Board to any applicable covered companies by no later than two weeks following the occurrence of the as-of date selected by the Board.

(c) In conducting a stress test under this section, the Board will make the following assumptions regarding a covered company’s capital actions over the planning horizon:

(1) The covered company will not pay any dividends on any instruments that qualify as common equity tier 1 capital;

(2) The covered company will make payments on instruments that qualify as additional tier 1 capital or tier 2 capital equal to the stated dividend, interest, or principal due on such instrument;

(3) The covered company will not make a redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio; and

(4) The covered company will not make any issuances of common stock or preferred stock.

(d) Frequency of analysis conducted by the Board.

(1) General. Except as provided in paragraph (d)(2) of this section, the Board will conduct its analysis of a covered company according to the frequency in Table 1 to section 252.44(d)(1).

Table 1 to section 252.44(d)(1)

Table 1. Table 1 to section 252.44(d)(1)
If the covered company is a	Then the Board will conduct its analysis
Global systemically important BHC	Annually.
Category II bank holding company	Annually.
Category II U.S. intermediate holding company	Annually.
Category III bank holding company	Annually.
Category III U.S. intermediate holding company	Annually.
Category IV bank holding company	Biennially, occurring in each year ending in an even number.
Category IV U.S. intermediate holding company	Biennially, occurring in each year ending in an even number.
Nonbank financial company supervised by the Board	Annually.

(2) Change in frequency.

(i) The Board may conduct a stress test of a covered company on a more or less frequent basis than would be required under paragraph (d)(1) of this section based on the company’s financial condition, size, complexity, risk profile, scope of operations, or activities, or risks to the U.S. economy.

(ii) A Category IV bank holding company or Category IV U.S. intermediate holding company may elect to have the Board conduct a stress test with respect to the company in a year ending in an odd number by providing notice to the Board and the appropriate Federal Reserve Bank by January 5 of that year. Notwithstanding the previous sentence, such a company may elect to have the Board conduct a stress test with respect to the company in the year 2021 by providing notice to the Board and the appropriate Federal Reserve Bank by April 5, 2021.

(3) Notice and response.

(i) Notification of change in frequency. If the Board determines to change the frequency of the stress test under paragraph (d)(2)(i) of this section, the Board will notify the company in writing and provide a discussion of the basis for its determination.

(ii) Request for reconsideration and Board response. Within 14 calendar days of receipt of a notification under paragraph (d)(3)(i) of this section, a covered company may request in writing that the Board reconsider the requirement to conduct a stress test on a more or less frequent basis than would be required under paragraph (d)(1) of this section. A covered company’s request for reconsideration must include an explanation as to why the request for reconsideration should be granted. The Board will respond in writing within 14 calendar days of receipt of the company’s request.

(e) Disclosure of models and material model changes:

(1) Annual disclosure. The Board will publicly disclose the models that the Board used to conduct the analysis for the stress test by May 15 of the calendar year in which the stress test is conducted pursuant to this section, with any additional adjustments to the models used to conduct the analysis for the stress test published no later than June 30 of the calendar year in which such stress test is performed. Additional adjustments would be limited to fixing clear errors, making technical changes, and addressing circumstances where the Board determines that a change in the models is necessary to accurately determine covered companies' projected post-stress common equity tier 1 capital ratio, as defined in 12 CFR part 217.

(2) Material model changes from previous stress test cycle. The Board will invite public input on any material model changes before implementing them. Beginning with the 2028 stress test cycle, the Board will invite public input, for a period of no less than 30 days, on any material model changes, by August 31 of the year prior to the year in which the stress test is performed, before implementing such material model changes in the stress test.

(3) Response to public input on material model changes. The Board will consider and respond to substantive public input on any material model changes before implementing such material model changes in the stress test.

Board of Governors of the Federal Reserve System

Federal Reserve Regulatory Service

SECTION 252.44—Analysis Conducted by the Board

Federal Reserve Regulatory Service

SECTION 252.44—Analysis Conducted by the Board

Supplementary Information