Washington, Jan 18 (IANS) The US Federal Deposit Insurance Corporation (FDIC) proposed a rule Tuesday that would require banks with more than $10 billion in assets to conduct annual stress tests.
The results would tell whether banks have enough cash and cash-like securities on their balance sheets to offset potential losses from risky loans, and also show whether a bank is capable to withstand an economic downturn, said Xinhua.
‘Both the FDIC and the institutions being tested will benefit from the forward-looking results that the stress tests will provide,’ acting FDIC chairperson Martin J. Gruenberg said.
‘The results will assist in ensuring an institution’s financial stability by helping to determine whether it has sufficient capital levels to withstand a period of economic stress.’
The proposal is part of the effort to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act requires each primary federal financial regulator, including the FDIC, to issue consistent and comparable stress-testing regulations for financial companies with total consolidated assets of more than $10 billion.
Annual stress tests help the government monitor the financial strength of banks. The 19 largest US banks with assets of more than $50 billion already underwent annual stress tests, which were conducted by the Federal Reserve.
The proposal will be open to public comments for 60 days.
The FDIC, created in 1933, aims to insure deposits at the 7,437 US banks and savings associations.