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UPDATE 1-U.S. to allow smaller banks more time for stress tests

* FDIC votes to require banks to conduct stress tests

* Banks with assets between $10 bln and $50 bln get extratime

* U.S. Comptroller issues comparable rules(Adds FDIC board comments) By Emily Stephenson

Oct 9 (Reuters) - U.S. regulators on Tuesday approved a planthat would give smaller banks an extra year before they mustbegin conducting annual stress tests to determine if they canwithstand a financial shock.

Stress tests are intended to demonstrate how banks wouldcope with a crisis and are part of more rigorous testingrequired by the 2010 Dodd-Frank financial oversight law. Thelargest U.S. banks face several such regulatory tests.

The board of the Federal Deposit Insurance Corp voted duringa meeting on Tuesday to implement stress test rules for banks itregulates that have more than $10 billion in assets. The Officeof the Comptroller of the Currency also announced it hadfinished comparable rules for banks under its supervision.

"This is an important rulemaking that will hopefully give usan important tool to identify risk going forward," FDIC ActingChairman Martin Gruenberg said during the meeting.

Under the plans, banks with more than $10 billion in assetswill run tests each year according to stress scenarios providedby regulators. The results will help regulators gauge the healthof the banking industry and identify steps banks must take tostrengthen their operations.

Larger institutions covered by the rules will receive thefirst set of scenarios in November and must report the resultsof the tests in January, the FDIC said.

But smaller banks said they would struggle to conducttesting that quickly, FDIC staff told the board. The boardincludes Gruenberg, Comptroller of the Currency Thomas Curry andConsumer Financial Protection Bureau Director Richard Cordray.

In response, the rules were modified to give banks withbetween $10 billion and $50 billion in assets until 2013 beforethey must begin stress testing. Those banks will have anadditional year after that before they must publicly disclosethe results of annual tests.

After that, banks in that range will also have a longer timeframe each year to report the results of their tests.

"I believe the implementation timeline in the final rulestrikes the right balance," Curry said. He said largerinstitutions already have experience with stress testing, sothey are better prepared to begin this year.

The FDIC also said it would work with the OCC and theFederal Reserve to make sure all three agencies providecomparable stress scenarios to avoid confusion for banks thathave multiple regulators. The Federal Reserve is also finalizingrules for the institutions it regulates.

(Reporting by Emily Stephenson; editing by Kenneth Barry)

((Emily.Stephenson@thomsonreuters.com)(202 354 5823))

Keywords: FINANCIAL REGULATION/STRESS