By: Brandon Pelletier | WIB Directors Digest
Reaching the $10 billion in assets threshold is a significant milestone, but it also can bring headaches; namely, complying with new capital stress testing requirements. Since enactment of The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), U.S. financial regulators and the Basel Committee on Banking Supervision began requiring depositories with $10+ billion in assets to follow the Dodd-Frank Annual Stress Testing (DFAST) and Comprehensive Capital Analysis and Review (CCAR).
For banks nearing the $10 billion mark, it’s important to begin preparing their boards and management teams several years before the stress testing rules are required. For example, it’s important to invest in a robust stress testing infrastructure to help ensure that the bank is fully equipped to manage the additional risks and compliance issues. Also, even if a bank considers risk to be minimal, stressing its balance sheet in a severe macroeconomic scenario can help the board and management teams better understand potential balance sheet risks.