In a comment letter to federal regulators today, ABA provided recommendations for improving the stress testing process for midsize banks and maximizing the effectiveness of the annual tests.
ABA pointed out that the stress tests for mid-sized banks are tailored significantly to each bank based on a number of factors including the institutions’ local economy and risk profile, and that because of this tailoring, comparing banks’ results side by side could lead to inaccurate conclusions about the health of the institution. Rather than publishing identifiable stress test information for each bank, regulators should instead consider publishing an aggregate summary of stress test information, which would satisfy the mid-sized stress test disclosure requirement under the Dodd-Frank Act, ABA said.
The association also favored a floating submission date, which would allow banks to conduct their stress tests during their capital planning process, allowing them to make more efficient use of their resources. Additionally, ABA recommended that midsize banks be permitted to use the same stress-test scenarios over a multi-year period, which would allow regulators to make more accurate comparisons of results from year-to-year, while reducing regulatory burden.