DODD-FRANK ACT STRESS TESTS (DFAST)

Beginning in 2014, FHFA required Fannie Mae and Freddie Mac and each individual Federal Home Loan Bank to conduct stress tests pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  The Dodd-Frank Act requires certain financial companies with total consolidated assets of more than $10 billion, and which are regulated by a primary federal financial regulatory agency, to conduct annu​al stress tests to determine whether the companies have sufficient capital to absorb losses and support operations during adverse economic conditions.  

Dodd-Frank Act stress testing is a forward-looking exercise that assesses the impact on capital levels that would result from immediate financial shocks and nine quarters of adverse economic conditions.  FHFA requires its regulated entities to submit the results of stress tests based on three scenarios: a Baseline scenario, an Adverse scenario, and a Severely Adverse scenario.  FHFA aligned the stress test scenario variables and assumptions with those used by the Board of Governors of the Federal Reserve System in its annual Dodd-Frank Act stress tests.