(a) General requirements. The supervisory stress tests consist of baseline, adverse, and severely adverse scenarios, which NCUA will provide by December 1 of a calendar year. The tests will be based on the covered credit union's financial data as of September 30 of that year, or such other date as directed by NCUA. The tests will take into account all relevant exposures and activities of a credit union to evaluate its ability to absorb losses in specified scenarios over a 9-quarter horizon. The minimum stress test capital ratio is 5 percent.
(b) NCUA-run tests. Except as provided in paragraph (c) of this section, NCUA will conduct the tests described in this section.
(c) Credit union-run tests under NCUA supervision. After NCUA has completed three consecutive supervisory stress tests, a covered credit union may, with NCUA approval, conduct the tests described in this section. A covered credit union must submit its request to NCUA to conduct its own stress test by July 31 for the following annual cycle. NCUA will approve or decline the credit union's request by August 31. The credit union must include the results of the tests in the capital plan it submits under Sec. 702.504. NCUA reserves the ability to conduct the tests described in this section on any covered credit union at any time. Where both NCUA and a covered credit union have conducted the tests, the results of NCUA's tests will determine whether the covered credit union has met the requirements of this section.
(d) Newly covered credit union. A credit union that becomes a covered credit union after the effective date of this regulation must have three NCUA-run stress tests before it can seek NCUA approval to conduct credit union-run stress tests.
(e) Potential impact on capital. In conducting a stress test under this subpart, during each quarter of the stress test horizon, NCUA or the covered credit union will estimate the following for each scenario:
(1) Losses, pre-provision net revenues, loan and lease loss provisions, and net income; and
(2) The potential impact on the stress test capital ratio, incorporating the effects of any capital action over the 9-quarter stress test horizon and maintenance of an allowance for loan losses appropriate for credit exposures throughout the horizon. NCUA or the covered credit union will conduct the stress test without assuming any risk mitigation actions on the part of the covered credit union, except those existing and identified as part of the covered credit union's balance sheet, or off-balance sheet positions, such as asset sales or derivatives positions, on the date of the stress test.
(f) Information collection. Upon request, the covered credit union must provide NCUA with any relevant qualitative or quantitative information requested by NCUA pertinent to the stress test under this section.
(g) Stress test results. NCUA will provide each covered credit union with the results of the stress test by May 31 of the year following the effective testing date. A credit union conducting its own stress test must provide NCUA the results of its stress test with its capital plan by February 28 of the year following the effective testing date.
(h) Supervisory actions. If NCUA-run stress tests show that a covered credit union does not have the ability to maintain a stress test capital ratio of 5 percent or more under expected and stressed conditions in each quarter of the 9-quarter horizon, the credit union must provide NCUA, within 90 days of receipt of the stress test results, a stress test capital enhancement plan showing how it will meet that target. If the credit union-run stress tests show that it does not have the ability to maintain a stress test capital ratio of 5 percent or more under expected and stressed conditions in each quarter of the 9-quarter horizon, the credit union must incorporate a stress test capital enhancement plan into its capital plan. Any affected credit union operating without a stress test capital enhancement plan accepted by NCUA may be subject to supervisory actions on the part of NCUA.
(i) Consultation on proposed action. Before taking any action under this section against a federally insured, state-chartered credit union, NCUA will consult and work cooperatively with the appropriate State official.