Kseniya (Kate) Strachnyi
An Introduction to CCAR
Comprehensive Capital Analysis & Review (CCAR)
© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
Contents
What is CCAR?
Mandatory Elements of a Capital Plan
Supervisory Review of Capital Plan
CCAR 2012 Results
CCAR & the Dodd-Frank Act
Key Considerations
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
What is CCAR?
To facilitate supervisory assessments of the bank holding company's (“BHC”) internal capital
Purpose
planning processes, capital adequacy, and proposed capital distributions
The capital plans rule applies to BHCs with assets greater than $50 billion and requires that these
Scope & BHCs develop and submit a capital plan to the Federal Reserve on an annual basis and to request
Frequency prior approval from the Federal Reserve under certain circumstances before making a capital
distribution
The CCAR represents a substantial strengthening of the Federal Reserve's approach to ensuring
Strengthening
that large BHCs have thorough and robust processes for managing and allocating their capital
Approach
resources
Importance of Capital is essential to a BHCs ability to absorb unexpected losses and continue to lend to
Capital creditworthy businesses and consumers
The Federal Reserve expects large, complex BHC’s to hold sufficient capital to maintain access to
Fed
funding, to continue to serve as credit intermediaries, to meet their obligations to creditors and
Expectations
counterparties, and to continue operations, even in an adverse environment
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
Mandatory Elements of a Capital Plan
The capital plan rule defines a capital plan as “a written presentation of a company’s capital
planning strategies and capital adequacy process that includes certain mandatory elements.”
These mandatory elements are organized into five main components:
An assessment of the expected uses and sources of capital over the planning horizon
A description of all planned capital actions over the planning horizon
Elements of a A discussion of any expected changes to the BHC’s business plan that are likely to
have a material impact on the BHC’s capital adequacy or liquidity
Capital Plan
A detailed description of the BHC’s process for assessing capital adequacy
A BHC’s capital policy
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Kseniya (Kate) Strachnyi
Supervisory Review of Capital Plan
The supervisory review of a BHC’s capital plan includes an assessment of:
The comprehensiveness of the capital plan, including the suitability of the BHC scenarios
Extent to which the risk measurement and other analysis underlying the plan capture and
appropriately address potential risks stemming from all activities across the BHC under baseline
and stressed operating conditions
The reasonableness of the BHC’s assumptions and analysis underlying the capital plan and a
review of the robustness of the BHC’s capital adequacy process
The BHC’s capital policy
The BHC’s ability to maintain capital above each minimum regulatory capital ratio and above a
tier 1 common ratio of 5 percent on a pro forma basis under expected and stressful conditions
throughout the planning horizon
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
CCAR 2012 Results
Per PWC’s FS Regulatory Brief, the key themes of the
CCAR 2012 results include:
• The CCAR 2012 methodology is the most severe,
comprehensive and rigorous of the three rounds of
stress tests conducted by US banks;
• CCAR 2012 results for the largest banking organizations
indicate a more highly capitalized and resilient segment
of the banking industry; and
• CCAR institutions will continue enhancing their capital
management process and related validation processes.
Figure 10 (right) illustrates the percentage of total loss rates in the supervisory stress scenarios:
• Results differ substantially across the 19 BHCs
• Differences reflect differences in portfolio composition and business focus
• Some loan categories tend to have higher loss rates than others
• Some business lines generate higher or lower amounts of revenue
• Differences also reflect variation in risk characteristics for the same type of activity
• Portfolio composition matters –customer risk characteristics, loan terms, loan structure
• This information collected systematically for the 19 BHCs on regulatory reports
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Kseniya (Kate) Strachnyi
CCAR & Dodd-Frank Act
The CCAR capital plans complement Dodd-Frank Act in two ways
1. The capital planning requirements are consistent with the Federal Reserve's obligations to impose enhanced capital
and risk-management standards on large financial firms under the Dodd-Frank Act
2. Dodd-Frank Act mandates that the Federal Reserve conduct annual stress tests on all BHC’s with $50 billion or more
in assets to determine whether they have the capital needed to absorb losses in baseline, adverse, and severely
adverse economic conditions
These tests will be integrated into the ongoing assessments of BHC capital required by the capital plans rule
As set forth in the law, the Federal Reserve will be implementing the specific stress testing requirements of Dodd-Frank Act
The Federal Reserve expects that the stress tests required in Dodd-Frank will be an important component of the annual
assessment of BHC capital plans
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
Key Considerations
A few key considerations for financial institutions are highlighted below:
Does the firm have a credible plan for meeting the new regulatory
What has been done to address the challenges resulting
capital requirements embodied in Basel III and to address the
from the requirement to use more granular data?
regulatory capital implications of the Dodd‐Frank Act?
Are there appropriate governance Key Do the numbers reported align/
procedures around data integrity and reconcile? (e.g. differences between
model validation? Considerations accounting and regulatory definitions)
Did the firm develop an Internal Adequacy Assessment
For stress testing models used for forecasting – were
Process (ICAAP) in order to identify all high risk areas, and
macro-level variables considered?
set capital standards?
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
Sources
• http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20111122c1.pdf
• http://www.pwc.com/en_US/us/financial-services/regulatory-
services/publications/assets/pwc-fs-reg-brief-ccar-2012-analysis-of-results.pdf
• http://www.federalreserve.gov/bankinforeg/ccar.htm
• http://www.federalreserve.gov/bankinforeg/bcreg20121109b1.pdf
• http://www.newyorkfed.org/education/pdf/2012/Hirtle_comprehensive_capital_analysis_re
view.pdf
• http://www.deloitte.com/view/en_US/us/Industries/Banking-Securities-Financial-
Services/financial-regulatory-reform/2ba88f3f875e7310VgnVCM3000001c56f00aRCRD.htm
• http://www.sullcrom.com/files/Publication/a8723c62-5db8-42cb-8a2a-
09667d45b951/Presentation/PublicationAttachment/ae1d94f6-330e-473d-aed0-
0d67b34be739/SC_Publication_Bank_Capital_Plans_and_Stress_Tests.pdf
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© 2013. All information contained herein is the sole property of RiskArticles.com.
Kseniya (Kate) Strachnyi
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