Alert May 22, 2012

Federal Banking Agencies Clarify Supervisory Expectations for Stress Testing by Community Banks

The FRB, FDIC and OCC (collectively, the “Agencies”) issued a Joint Statement (the “Statement”) providing guidance as to their supervisory expectations regarding stress testing by Community Banks, which they defined for purposes of the Statement as banks, savings associations, bank holding companies and savings and loan holding companies with $10 billion or less in total assets.  For a discussion of the Agencies’ final guidance with regard to stress testing at larger financial institutions please see the related article in this edition.  The Agencies declare in the Statement that Community Banks are not required to implement the types of stress testing required of larger organizations, but Community Banks are expected to consider and address potential adverse outcomes as part of their implementation of sound risk management practices.  In particular, the Agencies note in the Statement that Community Banks are expected to continue to meet the requirements of the Agencies’ existing risk management guidance on such issues as interest rate risk management, commercial real estate concentrations, and funding and liquidity risk management.