ABA Seeks Stress Test Relief for ‘Category IV’ Regional Banks

In a letter to Federal Reserve Vice Chairman for Supervision Randal Quarles in late December, the American Bankers Association urged the Fed to issue an interim final rule providing relief from the 2019 stress testing cycle for smaller regional institutions (“Category IV banks”).

Under its proposed framework for applying enhanced prudential standards to banking firms with $100 billion or more in assets, the Fed created four distinct categories of standards that seek to reflect the risks of firms in the group. The Fed defines Category IV banks as institutions with total consolidated assets of $100 billion or more that do not meet the thresholds for one of the other three categories and are generally not as likely to have as significant of an impact on financial stability as a Category I, II or III institution.

ABA noted that providing immediate relief for Category IV banks would provide much needed clarity and avoid waste. The association added that in the absence of a supervisory stress test, regulators should provide guidance describing expectations for Category IV banks’ 2019 capital planning activities.