Dodd-Frank Annual Stress Test is a simulation that tests the financial system’s ability to remain solvent. It was enacted when Congress enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly know as the Dodd-Frank Act, named for its sponsors Senators Chris Dodd (Connecticut) and Barney Frank (Massachusetts).
Scenarios simulated are not arbitrary. There are 28 variables and they are based on historical economic crises. The variables are such things as rise in unemployment, rise in oil prices, rise in interest rates, fall of the GDP or a sudden equity market crash. National banks and federal savings associations are categorized into two for the simulation: those with more that $50 Billion in assets and those with less. Those with less than $10 Billion are exempt from participating in the Test.
Resources
- Dodd-Frank Update.com
- Federal Register
- OCC: Dodd-Frank Stress Test
- FRB: Stress Tests and Capital Planning
About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.
