One of the notable financial regulatory tools that resulted from the post-financial crisis prudential regulations is stress testing. The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has the authority to conduct two forms of testing: (1) the Dodd-Frank Act Stress Test (“DFAST”), established pursuant to Section 165(i) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”); and (2) the Comprehensive Capital Analysis and Review (“CCAR”).

DFAST requires a covered financial institution to provide the Federal Reserve with detailed, standardized financial data in order to permit the Federal Reserve to assess whether the financial institution would be able to maintain sufficient levels of capital during an “adverse” or “severely adverse” event. Through the CCAR process the Federal Reserve can evaluate whether a financial institution’s (i) capital provides an adequate buffer for losses that would be incurred during a stress scenario; (ii) risk management and capital planning processes are sufficiently robust and well managed; and (iii) plans to pay out capital (either through dividends or share repurchases) could materially impact its ability to remain a viable financial intermediary during a stress scenario. Some trade groups and other industry representatives have questioned whether the Federal Reserve’s stress tests run counter to the Federal Reserve’s obligations under the Administrative Procedures Act (the “APA”), because stress testing relies on models and hypothetical scenarios that are not subject to noticeand-comment rulemaking.