H.R. 5270 — Stress Testing Accountability and Transparency Act

This section directs the Board of Governors of the Federal Reserve System, not later than 90 days after enactment, to issue a rule (1) establishing the models, assumptions, formulas, and other decisional methodologies used to conduct stress tests under section 165(i) of the Financial Stability Act of 2010 (12 U.S.C. 5365(i)), including any such tests used to determine components of the stress capital buffer requirement for covered companies (i.e., large bank holding companies and intermediate holding companies subject to 12 CFR 225.8 or 238.170); and (2) basing a covered company's stress capital buffer requirement on supervisory stress test results from two or more periodic analyses, where available. (As background, the stress capital buffer requirement sets the amount of common equity tier 1 capital—above risk-based requirements—that a covered company must hold based on projected losses in Fed stress tests.) The section further (1) requires material changes to those methodologies to occur only through notice-and-comment rulemaking; (2) directs the Board to ensure no double-counting of capital requirements for the same risks between the stress capital buffer and risk-based capital requirements; and (3) clarifies that it does not mandate establishing stress capital buffers for any bank holding company or other regulated company.

This section directs the Federal Reserve Board, beginning in the first calendar year after enactment, to publicly disclose each scenario to be used in stress tests under section 165(i) of the Financial Stability Act of 2010 (i.e., company-run stress tests for large bank holding companies and systemically important nonbank financial companies) at least 60 days before conducting such tests. The section further prohibits the Board from subjecting any nonbank financial company or bank holding company to a climate-related stress test using that authority.

This section directs the Comptroller General of the United States to conduct a study every three years and submit a report to Congress assessing the effectiveness of stress tests conducted by the Federal Reserve under section 165(i) of the Financial Stability Act of 2010 (i.e., annual assessments of capital adequacy for large bank holding companies and systemically important nonbank financial companies under hypothetical adverse economic scenarios). The report, covering stress tests in the three most recent calendar years, evaluates such tests with respect to (1) the safety and soundness of nonbank financial companies and bank holding companies subject to the tests and (2) the stability of the U.S. financial system.