Zions, Raymond James approach Fed stress-test threshold

Banks such as Zions Bancorp. NA, Comerica Inc., Raymond James Financial Inc. and New York Community Bancorp Inc. are nearing the asset threshold that would subject them to the Federal Reserve's stress tests.

Seven banks have between $80 billion and $100 billion in assets, according to an analysis by S&P Global Market Intelligence. Growing beyond $100 billion in assets means that a bank can be required to participate in the stress tests every other year. Banks with up to $250 billion in assets are tested on the two-year cycle, while larger banks are tested annually.

The Fed conducts stress tests every year to help ensure that large banks are able to lend during a severe economic downturn.

Crossing the threshold

In the last year, Signature Bank and First Citizens BancShares Inc. surpassed the $100 billion asset threshold. First Citizens crossed it following a merger of equals with CIT Group Inc., which had previously participated in the stress tests. At the announcement, executives said CIT already had the infrastructure needed for the heightened regulatory standards for a bank with more than $100 billion in assets.

"Most banks don't inadvertently cross this threshold," said Matthew Bisanz, partner in the Financial Services Regulatory and Enforcement practice at Mayer Brown LLP. Bisanz did not address specific banks.

"There is a significant yearslong planning process," he said in an interview. "They are starting to position resources. They're starting to understand what their obligations are. And so I think that it will be burdensome but manageable for these banks."

Growing through M&A

There are two pending mergers involving banks with $40 billion to $130 billion of assets. Six have been completed so far this year, and one deal each was completed in 2021 and 2020.

The largest of these deals was Webster Financial Corp.'s $5.2 billion purchase of Pearl River, N.Y.-based Sterling Bancorp, which closed in January. The smallest was SouthState Corp.'s $545.3 million acquisition of Atlanta-based Atlantic Capital Bancshares Inc., which closed in March.

Getting ready

The Fed will release results of this year's stress tests June 23. This year, 34 banks are participating.

Banks that are not included might do similar tests on their own.

* Download a tear sheet to run a stress test on banks and thrifts. * Download a template that can generate a bank's regulatory profile.

"Even if they are not undergoing the supervisory stress test, most banks of this size are engaged in some form of internal quantitative analysis," Bisanz said. "I think a lot of banks, either as good practice or as supervisory guidance, have some of these systems in place. … Maybe the first go-around is a little bumpy, but I'm not aware of any major implementation problems ... that the Fed has publicly cited banks having when they transition into the CCAR regime."

Although some dropped out when the threshold was raised from $50 billion to $100 billion, "I think over time, we would expect more banks to become subject to it, just as banks grow," Bisanz said.