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Regulators Want Stress Tests for Banks

The top three U.S. banking regulators have ""issued guidelines"":http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110609a1.pdf that would require comprehensive stress tests every year for lending institutions with assets totaling $10 billion or more.

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The ""Federal Reserve"":http://www.federalreserve.gov, ""FDIC"":http://www.fdic.gov, and ""Office of the Comptroller of the Currency"":http://www.occ.gov proposed guidance material that would test a bank's capital preparedness and lending ability under national economic duress.

""The recent financial crisis underscored the need for banking organizations to conduct stress tests to help prepare for events and circumstances that can threaten their financial condition and viability,"" the regulators said in a joint press release. ""An effective stress-testing framework covers a banking organization's full set of material activities, exposures, and risks, whether on or off the balance sheet.""

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According to the release, the Federal Reserve held that the stress tests build on the Comprehensive Capital Analysis and Review (CCAR). Proposed guidance material would require that boards of directors for the largest banks submit capital reviews as part of the CCAR to the Federal Reserve every year.

_Forbes_ reported that the stress tests would also appraise the integrity of the banks' payout plans for shareholders.

Regulators noted that the 19 largest banks recently completed the CCAR. A statement added that 35 banking institutions hold assets of at least $50 billion, something that would require their participation in the stress tests.

If implemented, the guidance would complement the broad array of reforms passed last July as part of the Dodd-Frank Act, which require that banks of all sizes gauge the financial well-being of their loans, securities portfolios, and capital planning processes by running various economic scenarios, according to _Bloomberg News_.

Fed Chairman Ben Bernanke faced criticism from banking officials about the regulatory overhaul at the International Monetary Conference on Tuesday.

According to a _Forbes_ report, Jamie Dimon, JP Morgan Chase chairman, notably made critical comments toward Bernanke, questioning ""how the litany of rules"" enacted by the Dodd-Frank Act interact with each other.

The three federal regulators have requested comments on the ""proposed stress test plan"":http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110609a1.pdf from lending institutions, representatives, and other officials. The official proposal will be published in the Federal Register by July 29, 2011.

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