FR4202_20150724_omb

Supporting Statement for the
Recordkeeping and Disclosure Provisions Associated with Stress Testing Guidance
(FR 4202; OMB No. 7100-0348)
Summary
The Board of Governors of the Federal Reserve System, under delegated authority from
the Office of Management and Budget (OMB) proposes to extend for three years, without
revision, the voluntary Recordkeeping and Disclosure Provisions Associated with Stress Testing
Guidance (Stress Testing Guidance) (FR 4202; OMB No. 7100-0348). The Paperwork
Reduction Act (PRA) classifies these recordkeeping and disclosure requirements as an
information collection, and the PRA requires, subsequent to implementation, the Federal Reserve
to renew these requirements every three years.
The interagency guidance outlines high-level principles for stress testing practices
applicable to all Federal Reserve-supervised, FDIC-supervised, and OCC-supervised banking
organizations (the agencies)1 with more than $10 billion in total consolidated assets. In
developing a stress testing framework and in carrying out stress tests, banking organizations2
should understand and clearly document all assumptions, uncertainties, and limitations, and
provide that information to users of the stress testing results. To ensure proper governance over
the stress testing framework, banking organizations should develop and maintain written policies
and procedures. The Board estimates the total annual burden for the FR 4202 to be 26,000
hours.
Background and Justification
The agencies published a joint notice of final guidance in the Federal Register on May
17, 2012 (77 FR 29458). The final guidance outlines high-level principles for stress testing
practices and highlights the importance of stress testing as an ongoing risk management practice
that supports a banking organization’s forward-looking assessment of its risks.
All banking organizations should have the capacity to understand their risks and the
potential impact of stressful events and circumstances on their financial condition. The U.S.
federal banking agencies have previously highlighted the use of stress testing as a means to

1

The agencies that were party to the rulemaking were the Office of the Comptroller of the Currency (OCC); Board
of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC); and are
collectively referred to as the agencies.
2
For purposes of this guidance, the term “banking organization” means national banks and Federal branches and
agencies supervised by the OCC; state member banks, bank holding companies, and all other institutions for which
the Federal Reserve is the primary federal supervisor; and state nonmember insured banks and other institutions
supervised by the FDIC.

better understand the range of banking organizations’ potential risk exposures.3 The financial
crisis that occurred between 2007 and 2009 further underscored the need for banking
organizations to incorporate stress testing into their risk management, as banking organizations
unprepared for stressful events and circumstances can suffer acute threats to their financial
condition and viability. The guidance is consistent with industry practices and with international
supervisory standards.4
Building upon previously issued supervisory guidance that discusses the uses and merits
of stress testing in specific areas of risk management, the final guidance provides an overview of
how banking organizations should structure their stress testing activities and ensure they fit into
overall risk management. The purpose of this guidance is to outline broad principles for a
satisfactory stress testing framework and describe the manner in which stress testing should be
employed as an integral component of risk management that is applicable at various levels of
aggregation within banking organizations, as well as for contributing to capital and liquidity
planning. While the guidance is not intended to provide detailed instructions for conducting
stress testing for any particular risk or business area, the guidance aims to describe several types
of stress testing activities and how they may be most appropriately used by banking
organizations. The guidance does not explicitly address the stress testing requirements imposed
upon certain companies by section 165(i) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank Act). On October 9, 2012, the Federal Reserve published
final rules to implement the stress testing requirements contained in section 165(i) of the DoddFrank Act.5 The provisions in the final rules are consistent with the principles in the guidance.
Description of Information Collection
General Stress Testing Principles
A banking organization should develop and implement an effective stress testing
framework that should include several activities and exercises, and not just rely on any single test
or type of test, since every stress test has limitations and relies on certain assumptions. The uses
of an organization’s stress testing framework should include, but not be limited to: augmenting
3

See, for example, Supervision and Regulation (SR) letter 10-6 or OCC Bulletin 2010-13 or FDIC FIL-13-2010,
“Interagency Policy Statement on Funding and Liquidity Risk Management”; SR 10-1 or OCC Bulletin 2010-1 or
FDIC Financial Institution Letter (FIL-2-2010), “Interagency Advisory on Interest Rate Risk”; SR letter 09-04,
“Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock
Repurchases at Bank Holding Companies”; SR letter 07-1, “Interagency Guidance on Concentrations in
Commercial Real Estate” or OCC Bulletin 2006-46 or FDIC FIL-104-2006, “Interagency Guidance on CRE
Concentration Risk Management”; SR letter 99-18, “Assessing Capital Adequacy in Relation to Risk at Large
Banking Organizations and Others with Complex Risk Profiles”; OCC Bulletin 2008-20 or FDIC FIL-71-2008
“Supervisory Guidance: Supervisory Review Process of Capital Adequacy (Pillar 2) Related to the Implementation
of the Basel II Advanced Capital Framework”; the Supervisory Capital Assessment Program (see
www.federalreserve.gov/newsevents/press/bcreg/bcreg20080715a1.pdf); and Comprehensive Capital Analysis and
Review: Objectives and Overview (see www.federalreserve.gov/newsevents/press/bcreg/20110318a.htm).
4
See “Principles for Sound Stress Testing Practices and Supervision,” Basel Committee on Banking Supervision,
May 2009.
5
Annual Company-Run Stress Test Requirements for Banking Organizations With Total Consolidated Assets Over
$10 Billion Other Than Covered Companies, 77 FR 198 (October 12, 2012); and Supervisory and Company-Run
Stress Test Requirements for Covered Companies, 77 FR 198 (October 12, 2012).

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risk identification and measurement; estimating business line revenues and losses; informing
business line strategies; assessing capital adequacy and enhancing capital planning; assessing
liquidity adequacy and informing contingency funding plans; contributing to strategic planning;
and assisting with recovery planning.
All risk measures, including stress tests, have an element of uncertainty due to
assumptions, limitations, and other factors associated both with the use of measures based on
past performance and with forward-looking estimates. An organization should document the
assumptions used in its stress tests and note the degree of uncertainty that may be incorporated
into the tools used for stress testing. In many cases, it may be appropriate to present and analyze
test results not just in terms of point estimates, but also including the potential margin of error or
statistical uncertainty around the estimates. Furthermore, all stress tests, including welldeveloped quantitative tests supported by high-quality data, employ a certain amount of expert or
business judgment that should be made transparent. In some cases, when credible data are
lacking and more quantitative tests are operationally challenging or in the early stages of
development, an organization may choose to employ more qualitatively-based tests, provided
that they are properly documented and their assumptions are transparent. Regardless of the type
of stress tests used, an organization should understand and clearly document all assumptions,
uncertainties, and limitations, and provide that information to users of the stress testing results.
Governance Over the Stress Testing Framework
Governance over an organization’s stress testing framework rests with the organization’s
board of directors and senior management. As part of their overall responsibilities, an
organization’s board and senior management should establish a comprehensive, integrated and
effective stress testing framework that fits into the broader risk management of the organization.
While the board is ultimately responsible for ensuring that the organization has an effective
stress testing framework, it should task senior management with implementing that framework.
Senior management duties should include establishing adequate policies and procedures and
ensuring compliance with those policies and procedures, assigning competent staff, overseeing
stress test development and implementation, evaluating stress test results, reviewing any findings
related to the stress test performance, and taking prompt remedial action where necessary.
Senior management, directly and through relevant committees, also should be responsible
for regularly reporting to the board on stress testing developments and results from individual
and collective stress tests as well as on compliance with stress testing policy. Board members
should actively evaluate these reports, ensuring that the stress testing framework is in line with
the organization’s risk appetite, overall strategy and business plans, and directing changes where
appropriate.
An organization should have written policies, approved and annually reviewed by the
board, that direct and govern the implementation of the stress testing framework in a
comprehensive manner. Policies, along with procedures to implement them, should
 describe the overall purpose of stress testing activities,
 articulate consistent and sufficiently rigorous stress testing practices across the entire
organization,

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indicate stress testing roles and responsibilities, including controls over external
resources used for any part of stress testing (such as vendors and data providers),
describe the frequency and priority with which stress testing activities should be
conducted,
indicate how stress test results are used and by whom,
be reviewed and updated as necessary to ensure that stress testing practices remain
appropriate and keep up to date with changes in market conditions, organization products
and strategies, organization exposures and activities, the organization’s established risk
appetite, and industry stress testing practices.

Time Schedule for Information Collection
The documentation required by the Guidance is maintained by each institution; therefore,
the documentation is not collected or published by the Federal Reserve System. These
recordkeeping requirements are documented on occasion. Bank examiners verify compliance
with this recordkeeping requirement during examinations.
Legal Status
The Board’s Legal Division has determined that this voluntary information collection is
authorized pursuant to sections 11(a), 11(i), 25, and 25A of the Federal Reserve Act (12 U.S.C.
§§ 248(a), 248(i), 602, and 611), section 5 of the Bank Holding Company Act (12 U.S.C. §
1844), and section 7(c) of the International Banking Act (12 U.S.C. § 3105(c)). To the extent the
Federal Reserve collects information during an examination of a banking organization,
confidential treatment may be afforded to the records under exemptions 4 and 8 of the Freedom
of Information Act (FOIA) (5 U.S.C. § 552(b)(4) and (8)).
Consultation Outside the Agency
On April 14, 2015, the Federal Reserve published a notice in the Federal Register (80 FR
19986) requesting public comment for 60 days on the FR 4202 information collection. The
comment period for this notice expired on June 15, 2015. The Federal Reserve did not receive
any comments. On June 29, 2015, the Federal Reserve published a final notice in the Federal
Register (80 FR 36991).
Estimate of Respondent Burden
The annual burden for the recordkeeping and disclosure requirements of this information
collection is estimated to be 26,000 hours, as shown in the table below. The Federal Reserve
estimates that it would take the 100 Federal Reserve-supervised institutions with more than $10
billion in total consolidated assets 180 hours to comply with the recordkeeping requirements,
including: 40 hours to document the assumptions used in its stress tests and note the degree of
uncertainty that may be incorporated into the tools used for stress testing; 40 hours to maintain a
summary of test results; 80 hours for the initial creation of the policies and procedures; and 20
hours for training. On a continuing basis the Federal Reserve estimates it will take 80 hours to
comply with the disclosure requirements, including: requiring the board of directors to review

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and approve annually the policies and procedures, and requiring the banking organization to
report to the board of directors on stress testing developments and results from individual and
collective stress tests as well as on compliance with stress testing policy. The total annual
burden for the FR 4202 represents less than 1 percent of total Federal Reserve System paperwork
burden.
Number of
respondents6

FR 4202

Annual
frequency

Estimated
average hours
per response

Estimated
annual burden
hours

Recordkeeping

100

1

180

18,000

Disclosure

100

1

80

8,000

Total

26,000

The current annual cost to the public of these reports is estimated to be $1,345,500.7
Sensitive Questions
This information collection contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
Since the FR 4202 does not require the Federal Reserve to collect any information, the
cost to the Federal Reserve System is negligible.

6

Of these respondents, none are estimated to be small entities as defined by the Small Business Administration (i.e.,
entities with less than $550 million in total assets) www.sba.gov/content/table-small-business-size-standards.
7
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $17, 45% Financial Managers at
$63, 15% Lawyers at $64, and 10% Chief Executives at $87). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2014, published March 25, 2015 www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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