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Stress test proposal approved by the FDIC

Martin J. GruenbergThe FDIC approved a proposal on Tuesday requiring large financial institutions to conduct stress tests in order to assess their overall stability.

The notice of proposed rulemaking would enact section 165(i)(2) of the Dodd-Frank Act, requiring FDIC-insured banks and savings associations with total assets of more than $10 billion to participate in the tests. Since September 2011, the FDIC has regulated 23 state banks.

The NPR defines “stress test” as a method of assessing “the potential impact of economic and financial conditions on the consolidated earnings, losses and capital of the bank over a set planning horizon, taking into account the current condition of the bank and its risks, exposures, strategies and activities.”

Stress tests would provide valuable information to the FDIC regarding the health of America's financial institutions.

“Both the FDIC and the institutions being tested will benefit from the forward-looking results that the stress tests will provide,” FDIC Acting Chairman Martin J. Gruenberg said. “The results will assist in ensuring an institution’s financial stability by helping determine whether it has sufficient capital levels to withstand a period of economic stress.”

The proposal will be posted with a 60 day comment period.

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