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Federal Reserve to phase out Comprehensive Capital Analysis and Review (CCAR) “qualitative objection”
On March 6, the Federal Reserve Board (Fed) announced plans to limit the use of the “qualitative objection” in its Comprehensive Capital Analysis and Review (CCAR) exercise. Effective for the 2019 cycle, large U.S. bank holding companies and U.S. intermediate holding companies of foreign banking organizations that participate in four CCAR exercises and successfully pass the qualitative evaluation in the fourth year will no longer be subject to the evaluation under the final rule, which measures firms’ ability on a forward-looking basis to determine capital needs. Firms that fail to pass in the fourth year, the Fed noted, will continue to be subject to a possible qualitative objection until they pass. Moreover, all firms’ capital planning processes will still be evaluated, and firms will be required to pass the quantitative evaluation, which evaluates their ability to maintain minimum levels of capital under hypothetical stress scenarios. Furthermore, the Fed stated that it plans to no longer issue qualitative objections to any firms effective January 1, 2021, with the exception of firms who receive a qualitative objection the preceding year. Along with the final rule, the Fed released instructions for this year’s CCAR exercise, confirming that five of the 18 firms subject to this year’s CCAR exercises will possibly be subject to a qualitative objection.