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UPDATE 2-U.S. to allow smaller banks more time for stress tests

* FDIC, Comptroller, Fed expanding stress tests to more banks

* Banks with assets between $10 bln and $50 bln get extra time

* Agencies to provide comparable stress scenarios (Adds Fed rules) By Emily Stephenson

Oct 9 (Reuters) - U.S. regulators on Tuesday approved plans that would give smaller banks an extra year before they must begin conducting annual stress tests to determine if they can withstand a financial shock.

Stress tests are intended to demonstrate how banks would cope with another financial crisis and are part of more rigorous testing required by the 2010 Dodd-Frank financial oversight law.

The largest U.S. banks have already undergone stress tests and regulators spelled out their plans on Tuesday to expand testing to additional banks, to gauge the health of the industry and identify steps to strengthen their operations.

The board of the Federal Deposit Insurance Corp voted during a meeting on Tuesday to implement stress test rules for banks it regulates that have more than $10 billion in assets.

The FDIC gave a break to banks with between $10 billion and $50 billion in assets, saying they will have until 2013 before they begin stress testing.

Separately, the Office of the Comptroller of the Currency and the Federal Reserve both announced they had finished rules for testing financial firms under their watch.

The regulators said they would work together to provide comparable stress scenarios to avoid confusion for institutions that have multiple regulators.

"Stress testing is a key tool to ensure that financial companies have enough capital to weather a severe economic downturn without posing a risk to their communities, other financial institutions or to the general economy," Fed Governor Daniel Tarullo said in a statement.

Banks with more than $10 billion in assets and bank holding companies with between $10 and $50 billion in assets will run tests each year, using stress scenarios provided by regulators.

The Fed will conduct stress tests on bank holding companies with more than $50 billion in assets, as well as any financial institution that regulators deem "systemically important." This group of firms also must conduct their own tests twice each year.

The Fed has already run stress tests on 19 of the largest U.S. institutions under its supervision. It said in March that 15 of those banks had enough capital to withstand a financial shock.

The 19 bank holding companies that have already undergone stress tests, their subsidiaries and other larger institutions above the $50 billion threshold must test this year. They will receive the first set of stress scenarios in November and must report results to regulators in January.

Smaller banks told regulators they would struggle to conduct testing that quickly, FDIC staff said, in explaining why regulators pushed back compliance for those banks to 2013.

Once they start complying, those smaller banks will also have more time each year to report the results of their tests.

"I believe the implementation timeline in the final rule strikes the right balance," said Comptroller of the Currency Thomas Curry, who sits on the FDIC board.

He said institutions that already have experience with stress testing are better prepared to begin this year.

Bank holding companies that were not part of the group that already went through Fed stress tests also will have an extra year, the Fed said.

(Reporting by Emily Stephenson; Editing by Kenneth Barry and Tim Dobbyn)

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

Keywords: FINANCIAL REGULATION/STRESS