Skip to main content

The Federal Reserve issued rules Monday that exempt regional banks from the "qualitative" part of yearly stress tests designed to gauge whether the firms can withstand an economic crisis similar to the one that shook the economy in 2008.

The measure, which was proposed in September, reduces the amount of data banks with $50 billion to $250 billion in assets must provide, the central bank said, and takes effect for the 2017 stress-test cycle that began this month. The largest U.S. banks, including Bank of America (BAC) - Get Bank of America Corp Report and Citigroup (C) - Get Citigroup Inc. Report , would still need to undergo qualitative exams of their risk-management systems.

Fed Governor Daniel Tarullo said in September that the shift would reduce the intensity of supervision of smaller banks' capital planning and remove uncertainty about supervisory expectations for the firms.

Roughly 20 mid-sized institutions will benefit, including Ally Financial (ALLY) - Get Ally Financial Inc Report ,  BB&T (BBT) - Get BB&T Corporation Report , Citizens Financial Group (CFG) - Get Citizens Financial Group, Inc. Report , Comerica (CMA) - Get Comerica Incorporated Report , Fifth Third Bancorp (FITB) - Get Fifth Third Bancorp Report , Huntington Bancshares (HBAN) - Get Huntington Bancshares Incorporated Report , KeyCorp (KEY) - Get KeyCorp Report , M&T Bank (MTB) - Get M&T Bank Corporation Report and Regions Financial (RF) - Get Regions Financial Corporation Report

TheStreet Recommends

While they avoid the possibility of a regulatory bar to dividends or buybacks on the often-fuzzier qualitative grounds, the institutions are still required to undergo the Fed's quantitative assessments of their ability to withstand varying degrees of economic distress.

Both are part of the yearly Comprehensive Capital Analysis and Review, or CCAR, which determines whether banks can move ahead with dividends and stock-buybacks planned for the next 12 months. The tests were set up to help prevent a repeat of the financial crisis, when the government spent billions on bailouts to shore up the U.S. economy.

Last year's test used modeling to gauge how the reviewed companies would have fared during a hypothetical "deep and prolonged" recession in which unemployment peaked at 10% in the middle of 2017 and equity prices fell by about 50%.

EXCLUSIVE LOOK INSIDE: Citigroup is a holding in Jim Cramer's Action Alerts PLUS charitable trust portfolio. Want to be alerted before Cramer buys or sells the stock? Learn more now.