WASHINGTON (9/27/13)--The Federal Housing Finance Agency (FHFA) has ordered Fannie Mae, Freddie Mac and Federal Home Loan Banks to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions, according to the Sept. 26 edition of the Federal Register.
Only FHLBs with more than $10 billion in consolidated assets will need to meet the terms of the order. The Dodd-Frank Act requires certain financial firms with more than $10 billion in assets to conduct annual stress tests.
National Credit Union Administration Chairman Debbie Matz this month said stress testing is just as important for credit unions of comparable size, and said the agency's Office of National Examinations and Supervision is drafting a requirement for annual stress tests at credit unions with assets exceeding $10 billion.
Matz said stress testing would be part of the NCUA's "coordinated approach" to supervision of a changing industry with asset growth concentrated in large credit unions. Stress testing of federally insured credit unions with state charters would be conducted in consultation with the state regulator.
The shocks used in the stress testing would be based on scenarios issued annually by the Federal Reserve, with adjustments for differences between banks and credit unions, Matz said.
A credit union that fails a stress test would be required to revise its capital plan to demonstrate how it would meet minimum stress test capital ratios, an agency release said. A credit union that passes the test would benefit from the analysis by identifying potential improvements in its enterprise risk management system. (See Sept. 19 News Now story: Matz Announces NCUA Will Propose Stress Testing Rule.)