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Comprehensive Capital Analysis and Review (CCAR)

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Read this snapshot for a high-level description of the impact of Comprehensive Capital Review and Analysis (CCAR) for American Financial Institutions.

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Comprehensive Capital Analysis and Review (CCAR)

  1. 1. Comprehensive Capital Analysis and Review (CCAR) Snapshot
  2. 2. Comprehensive Capital Analysis and Review (CCAR) Snapshot Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. 2 TABLE OF CONTENTS 1 Introduction – CCAR _______________________________3 2 Key Milestones ___________________________________4 3 Impact Assessment ________________________________4 4 Considerations____________________________________5 5 Opportunities ____________________________________6 6 How we add value _________________________________7 7 About the Author__________________________________8 8 About Hatstand ___________________________________9 Disclaimer We try to ensure that the information in this document is correct at the time of going to press, but we do not give any express or implied warranty as to its accuracy. We do not accept any liability for error or omission. We are not liable for any damages (including, without limitation, damages for loss of business or loss of profits) arising in contract, tort or otherwise from the use of this document, or from any action or decision taken as a result of using this document. Any opinions or suggestions contained in this document are for discussion purposes only and do not constitute financial, legal or other professional advice. You should consult your professional adviser if you require financial or legal advice.
  3. 3. Comprehensive Capital Analysis and Review (CCAR) Snapshot Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. 3 1 Introduction – CCAR Comprehensive Capital Analysis and Review (CCAR) was established by the Federal Reserve in 2011 and is an annual assessment of the capital adequacy of large complex Bank Holding Companies (BHCs) operating in the U.S. It tests for whether there is sufficient capital to cover operations in times of economic and financial stress and whether a robust, forward- looking, capital-planning process is in place. This includes the firms’ planned capital actions like dividend payments, share buy-backs and share issuances. CCAR requires both a quantitative and a qualitative approach to reporting capital. The Federal Reserve can object to a BHC’s capital plan on either quantitative or qualitative grounds. CCAR applies to BHCs with global assets of $50B or greater and there are currently 31 BHCs required to participate in this exercise. The 31 firms that participated in the 2015 CCAR submissions currently hold more than 80% of all of the U.S. BHCs’ assets. The 2008 Financial Crisis showed that both quantity and quality of capital contributes to a BHC’s ability to weather a storm. Post-recession, we have seen an improvement in the overall systemic resilience of the financial business sector. According to Federal Reserve Governor Daniel K. Tarullo, “Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn.” The scenarios tested cover a baseline, as well as adverse and severely adverse scenarios, and include 28 variables, which cover economic activity, unemployment, exchange rates, prices, incomes, and interest rates. The adverse and severely adverse scenarios are purely hypothetical and do not reflect the Federal Reserve’s forecasts, but rather, are designed to assess the health of each BHC and their resilience in the face of adverse economic environments. According to Federal Reserve Governor Daniel K. Tarullo, “Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn.”
  4. 4. Comprehensive Capital Analysis and Review (CCAR) Snapshot Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. 4 2 Key Milestones April 5 2016 Next Capital Plan due to Federal Reserve. Execution period moving from Q4 to Q1. This is a change to the previous requirement to submit plans in January of each year. This provides a one-time additional quarter in which to implement enhancements based on formal Federal Reserve feedback from the 2015 submissions. Going forward capital plans must be submitted to the Federal Reserve in April of each year. 3 Impact Assessment CCAR is a tool that the Federal Reserve is using to check that large BHCs have sufficient Tier 1 capital on hand in stressed scenarios and also have in place robust processes for managing this capital, supported by effective firm-wide risk identification, measurement, management and governance practices. A key focus of the Federal Reserve in the 2015 reporting cycle concerned material risk identification, a comprehensive process for identifying the full range of relevant risks arising from a BHC’s exposures and business mix. This includes those exposures that may only become apparent under stress. CCAR is a tool used by the Federal Reserve to assess Tier 1 Capital and how it is managed, risk management and governance practices.
  5. 5. Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. You have reached the end of the CCAR Slideshare Preview This is a preview version of our paper on Comprehensive Capital Analysis and Review. Access and download the full document for free at www.hatstand.com/insights For more information, please contact info@hatstand.com and we’ll be happy to answer any questions and recommend other papers that will be of use to you.
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