Comprehensive Capital Analysis and Review
{{Short description|United States regulatory framework}}
{{Use mdy dates|date=October 2017}}
{{original research|date=June 2015}}
Comprehensive Capital Analysis and Review (CCAR) is a United States regulatory framework introduced by the Federal Reserve in 2009{{cite web |url=https://www.federalreserve.gov/bankinforeg/ccar-and-stress-testing-as-complementary-supervisory-tools.htm |title=CCAR and Stress Testing as Complementary Supervisory Tools}} to assess, regulate, and supervise large banks and financial institutions – collectively referred to in the framework as bank holding companies (BHCs). It was an extension of the stress tests performed during the 2008 financial crisis.
The assessment is conducted annually and comprises two related programs:
- Comprehensive Capital Analysis and Review
- Dodd–Frank Act supervisory stress testing
The core part of the program assesses whether:
- BHCs possess adequate capital.
- The capital structure is stable given various stress-test scenarios.
- Planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to regulatory minimum capital requirements.
The assessment is performed on both qualitative and quantitative bases. The Federal Reserve may order banks to suspend their planned capital distributions to shareholders until the target capital balance is restored. Since 2009 many banks have failed CCAR on both qualitative and quantitive grounds.[https://www.americanbanker.com/slideshow/nine-banks-that-have-fallen-short-on-the-feds-stress-tests]
Dodd–Frank Act supervisory stress testing
Dodd–Frank Act imposes forward-looking stress testing of a bank's capital structure on a quantitative basis via models. Model risk management guidance has been provided by the Federal Reserve and the Office of the Comptroller of Currency in SR 11-7. A significant portion of banks' total effort spent on CCAR is devoted to compliance with SR 11-7, as the standards set within this guidance are stringent.{{Cite web |title=The Fed - Supervisory Letter SR 11-7 on guidance on Model Risk Management -- April 4, 2011 |url=https://www.federalreserve.gov/supervisionreg/srletters/sr1107.htm |access-date=2024-07-03 |website=www.federalreserve.gov |language=en}}
The Federal Reserve publishes three supervisory scenarios annually which each BHC must model: baseline, adverse, and severely adverse. These scenarios contain numeric values of macroeconomic indicators describing potential global economic scenarios two years (nine quarters) into the future. According to the Federal Reserve, each scenario represents the following:{{Cite web |date=January 1, 2014 |title=Policy Statement on the Scenario Design Framework for Stress Testing |url=https://www.federalreserve.gov/bankinforeg/bcreg20131107a1.pdf |archive-url=https://web.archive.org/web/20221002114130/https://www.federalreserve.gov/bankinforeg/bcreg20131107a1.pdf |archive-date=October 2, 2022 |access-date=December 6, 2022 |publisher=Board of Governors of the Federal Reserve System |pages=22}}
{{Quote|text=The baseline scenario will reflect the most recently available consensus views of the macroeconomic outlook expressed by professional forecasters, government agencies, and other public-sector organizations as of the beginning of the annual stresstest cycle. The severely adverse scenario will consist of a set of economic and financial conditions that reflect the conditions of post-war U.S. recessions. The adverse scenario will consist of a set of economic and financial conditions that are more adverse than those associated with the baseline scenario but less severe than those associated with the severely adverse scenario.}}
The BHCs are responsible for designing their own scenarios to ensure capital adequacy for both the annual and mid-cycle stress tests.{{Cite web |date=January 1, 2017 |year=2017 |orig-date=October 27, 2014 |title=12 CFR § 225.8 - Capital planning |url=https://www.govinfo.gov/app/details/CFR-2017-title12-vol3/CFR-2017-title12-vol3-sec225-8/summary |access-date=December 6, 2022 |website=GoveInfo.gov |publisher=GovInfo |page=(e)}}{{Cite web |date=February 2022 |title=2022 Stress Test Scenarios |url=https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20220210a1.pdf |archive-url=https://web.archive.org/web/20220424171640/https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20220210a1.pdf |archive-date=April 24, 2022 |access-date=December 6, 2022 |website=Federal Reserve Board Publications}}
Results of each stress test are reported by the BHCs in the FR Y-14A. This report contains the banks projections for 9 forward looking quarters on the same schedule as the FR Y-9C, which contains the BHCs actual results for the prior 4 quarters. Within the report are schedules for pre-provision net revenues (PPNR), balance sheet, risk weighted assets (RWA), Leverage Exposure, among others.{{Cite web |title=Federal Reserve Board - Reporting Forms |url=https://www.federalreserve.gov/apps/reportingforms/Report/Index/FR_Y-14A |access-date=2024-07-03 |website=www.federalreserve.gov |language=en}}
The Federal Reserve publishes a summary of each year's results.{{Cite web |title=The Fed - Comprehensive Capital Analysis and Review (CCAR) Publications |url=https://www.federalreserve.gov/publications/comprehensive-capital-analysis-and-review-publications.htm |access-date=2022-12-06 |website=Board of Governors of the Federal Reserve System |language=en}} (until 2020) and {{Cite web |title=Dodd-Frank Act Stress Test Publications |url=https://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm |access-date=2025-05-28 |website=Board of Governors of the Federal Reserve System |language=en}}
See also
- Stress test (financial)
- Capital requirement
- Too big to fail
- Systemic risk
- {{slink|Financial risk management#Banking}}
- Basel III
- Leverage
References
{{Reflist}}
External links
- [http://www.federalreserve.gov/bankinforeg/stress-tests/CCAR/201503-comprehensive-capital-analysis-review-preface.htm Information on the FED website]
- [http://corpgov.law.harvard.edu/2015/03/22/key-points-from-the-2015-comprehensive-capital-analysis-and-review-ccar/ Key Points from the 2015 CCAR]
- [http://www.pwc.com/us/en/financial-services/regulatory-services/publications/2016-ccar-results.html/ PwC Financial Services Risk and Regulatory Practice: 2016 CCAR Results]
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Category:United States federal banking legislation
Category:Stress tests (financial)
Category:Consumer Financial Protection Bureau