The government wants to know how more members of the banking industry can deal with stress.
This week, the Federal Reserve Board approved new rules that will require banks with assets that total between $10 billion and $50 billion to run internal stress tests beginning next fall. While stress tests already have been in place for the biggest institutions, this new rule means that some regional and mid-sized banks will need to determine how well they can handle challenging economic scenarios.
These new rules will impact the country's biggest banks, too. The 19 biggest institutions in the country with more than $50 billion in assets will now undergo two tests: one conducted by the Fed and a second conducted internally. However, the results won't remain inside the walls of these big banks. The rule requires that they make the results available to the public. Smaller banks will not make the results of their first test public.
Bank safety has been an ongoing conversation since the financial crisis revealed that some institutions were inadequately prepared for a sagging economy. Consumers have watched many small banks shutter their doors and listened to ongoing debates about the implications of banks that are too big to fail. These tests are designed to ensure that banks are healthy enough to handle unexpected major losses or external market factors that can create serious problems.
"Stress tests are one tool of many that federal financial regulators have to monitor the banks they supervise," says Greg Hernandez, a Federal Deposit Insurance Corp. spokesman.
From newly created living wills to the Volcker rule, regulators are working to implement many of those tools in addition to these tests.
What do you think of the enhanced regulation? Will you pay close attention to whether your bank can pass the test?