Compliance

12:06 PM
Bryan Yurcan
Bryan Yurcan
Commentary
Connect Directly
Facebook
Twitter
Google+
RSS
E-Mail
50%
50%

Stressed Out? Mid-Tier Banks Come Under Fed Scrutiny

Banks with between $10 and $50 billion in assets will now have to undergo Fed stress tests for the first time this year.

Since the near-collapse of the economy 2009, The Federal Reserve has been testing the capital adequacy of the nation's larger banks by making them show that they would have enough capital liquidity to survive adverse or disastrous economic conditions -- commonly known as "stress tests."

While big banks have been going through this process on an annual basis for several years now, many of the nation's mid-tier banks will now face the same tests. Last year, the Fed announced that banks between $10 and $50 billion in total assets will have to prepare for the stress tests, which will be conducted in the fall of 2013.

[Related: Stress Testing and Data Collection]

Even though banks in the $10-$50 billion range will not be subjected to as intensive a process as the nation's largest banks are, there are still similar expectations that banks of this size will deliver the data the Fed is seeking.

I spoke with several industry experts about how medium-sized banks will cope with being stress tested. One of those I spoke with, Jeff Sant, EVP of sales and marketing and co-founder of Primatics, a software provider for financial institutions, says one fear is that many of the banks in this asset range will not be suitably prepared for the stress tests. Though they won't be subjected to as robust reporting requirements as the larger banks, many may still be unprepared since they don't normally take into consideration how they might be affected by large, macro-ecomonic scenarios, he says.

However, it's not all doom and gloom for banks of this size, Sant notes. On the other hand, many smaller banks are far better capitalized than larger banks and not as systemically important to the national economy, meaning it could also be less likely they will fail the stress tests.

Either way, it will be interested to see how these banks fare in the stress tests, though the results will not be made public until likely next year. For a more in depth look at how the Fed stress tests have affected the banking industry, be sure to download our August digital issue.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
KBurger
50%
50%
KBurger,
User Rank: Author
7/8/2013 | 5:42:57 PM
re: Stressed Out? Mid-Tier Banks Come Under Fed Scrutiny
It seems to me that, even tho any new compliance requirement has its costs, challenges & burdens, the upside of stress testing and the related investments has got to be tremendous. Having a timely (real-time) accurate picture of your capital position has got to be really valuable, and the capabilities that let you get that picture can be leveraged (I would think) for many other performance/financial insights into investment, loan, product and channel performance. And with smaller banks facing a host of new competitive challenges, doesn't this process make them stronger?
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology Oct. 14, 2014
Bank Systems & Technology's new Must Reads is a compendium of our best recent coverage of customer analytics. Learn what big data means for banks, meet Wells Fargo CDO Charles Thomas, find out how to connect with your Gen Y customers, and more.
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.