In a recent announcement, the FDIC announced approval of new proposed changes for stress tests conducted on large banks. The FDIC is the Federal Deposit Insurance Corporation and insures some financial accounts through various financial institutions. Prior to the recent financial collapse, FDIC insured covered accounts of deposits up to $200,000. That insured amount, following the financial collapse in 2009, was increase to a maximum amount of $250,000 per account.
The new stress test regulations were recently enacted as required by the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Those financial institutions that these new rules apply to are those financial institutions that have $10 billion or more in consolidated assets.
This rule addresses and satisfies the final rule of this recent legislation. That recent legislation of the Dodd Frank Act is in section 165(i)(2)(A). This particular section mandates that all financial institutions with a combined asset total of more than $10 billion is required to undergo a company enacted stress test. In addition, this newly enacted regulation calls for those institutions that have assets totaling over $50 billion to begin the annual stress tests within the current year of 2012. However, the FDIC is allowed to provide some leniency to these particular financial institutions by granting the right to delay this stress test. Requests for a waiver in providing the stress test this year is taken under advisement on a case-by-case basis where indicated.
Those institutions that have total assets ranging from $10 billion to $50 billion are not required to conduct an annual stress test until October of 2013.
For those companies who are mandated to conduct those stress tests this year, the FDIC is expected to unveil the various related scenarios in November. The financial data that these institutions will use to undergo the stress test will be as of the end of the third quarter or September 30, 2012. The results of the various stress tests will be released in January of the New Year.
Also, in addition to implementing regulations for stress tests, the board of the FDIC agreed on a final regulation that addresses the insurance assessment system related to deposits for insured depository institutions that have accumulated $10 billion in assets or more. This final rule more clearly defines the definitions that are in place to clearly identify large deposits in assets that are termed as higher risk. This change to the rule is instituted to better identify the risk posed to these financial institutions and ultimately the FDIC in the event of loss.
Over 108 institutions have been identified as having more than $10 billion in assets.
The final action that was taken by the FDIC was to review their reserve ratio projections to potential loss income. This review took into account several years of projections. The conclusion was that the deposit insurance fund ratio is in keeping with the minimum goal of 1.35% by September 30 of 2020.
Martin J Gruenberg, acting chairman of the FDIC, basically released a statement indicating that the deposit insurance fund is on a good trajectory to ensure that banks are not overburdened as the continual recovery of the economy takes place.