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Federal Reserve releases Comprehensive Capital Analysis and Review results
On June 28, the Federal Reserve released the results of the Comprehensive Capital Analysis and Review (CCAR) conducted for 35 firms. This is the eighth year the Fed has conducted the CCAR exercise for the largest U.S.-based bank holding companies. The Fed considers quantitative and qualitative factors in its evaluation, including projected capital ratios under hypothetical severe economic conditions and strength of the firm’s risk management, internal controls, and governance practices that support the capital planning process. This year, 18 firms were subject to both quantitative and qualitative assessments, and 17 firms were only subject to the quantitative assessment. The Fed objected to one firm’s capital plan based on qualitative concerns and issued conditional non-objections to two firms based on changes to the tax law that negatively affected capital levels. However, the one-time reductions are not considered a reflection of the firms’ performances under stress. Overall, U.S. firms have substantially increased their capital since 2009 when the first round of stress tests were conducted.
Federal Reserve releases stress test results
On June 21, the Federal Reserve Board released the results of stress tests conducted on 35 financial institutions, representing 80 percent of the assets of all banks operating in the U.S. The results are from the eighth round of stress tests led by the Fed since 2009 and the sixth round under the Dodd-Frank Act. Under the most severe scenario tested by the Fed, consisting of a severe global recession with unemployment rising to 10 percent and a steepening Treasury yield curve, the Fed projected losses at the 35 institutions would total $578 billion and the aggregate common equity tier 1 capital ratio would fall from an actual 12.3 percent in the fourth quarter of 2017 to 7.9 percent. The Fed also noted that several factors, including higher credit card balances and changes to the tax code, affected the post-stress capital ratios this year.
NCUA issues final rule regarding capital planning and stress testing
On April 25, the National Credit Union Administration (NCUA) issued a final rule in the Federal Register amending its capital planning and stress testing regulations for federally insured credit unions with assets of at least $10 billion after considering comments received following a notice for proposed changes last October. (See previous InfoBytes coverage here.) Among other things, the final rule reduces regulatory burden and improves efficiency by allowing covered credit unions to conduct their own stress tests in accordance with NCUA requirements and report the results in their capital plan submissions. The final rule is effective June 1.
Federal Reserve requests comments on proposal addressing capital plan and stress test rules
On April 25, the Federal Reserve Board (Fed) published a request for comments in the Federal Register on a proposal to amend the Fed’s capital plan rule, capital rule, and stress testing rules by integrating the rules to simplify the capital regime. Under the proposed rule, a financial institution’s required stress capital buffer and stress leverage buffer would be established by the Fed’s supervisory stress test. The stress capital buffer requirement would replace the existing, static 2.5 percent of risk-weighted assets portion of the capital conservation buffer requirement under the standardized approach of the capital rule. The proposal—which would take effect December 31 with financial institutions’ first set of buffer requirements generally going into effect on October 1, 2019—would apply to bank holding companies with total consolidated assets of $50 billion or more, as well as U.S. intermediate holding companies of foreign banking organizations established pursuant to the Fed’s Regulation YY. Community banks, state member banks or saving and loan companies, and bank holding companies that do not meet the required asset threshold would be exempt. All comments must be received by June 25.
Houses passes two bipartisan bills to ease stress test requirements and nonbank challenges to SIFI designations
On April 11, by a vote of 245-174, the House passed H.R. 4293, the “Stress Test Improvement Act of 2017,” which would amend the Dodd-Frank Act to modify stress test requirements for bank holding companies and certain nonbank financial companies. Among other things, H.R. 4293 prohibits the Federal Reserve Board’s (Board) to object to a company’s capital plan “on the basis of qualitative deficiencies in the company’s capital planning process” when conducting a Comprehensive Capital Analysis and Review (CCAR), and reduces the frequency of stress testing from semiannual to annual. As previously covered in InfoBytes, on April 10, the Board issued its own proposed changes intended to simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets by integrating the Board’s regulatory capital rule and CCAR and stress test rules.
Separately on April, 11, the House passed H.R. 4061 by a vote of 297-121. The bipartisan bill, “Financial Stability Oversight Council (FSOC) Improvement Act of 2017,” would require FSOC to consider the appropriateness of subjecting nonbank financial companies (nonbanks) designated as systemically important to prudential standards “as opposed to other forms of regulation to mitigate the identified risks.” Among other things, the bill would also require FSOC to allow nonbanks the opportunity to meet with FSOC to present relevant information to contest the designation both during an annual reevaluation, as well as every five years after the date of final determination.
Federal Reserve proposes changes to simplify capital rules for large banks
On April 10, the Federal Reserve Board (Board) announced proposed changes intended to simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets by integrating the Board’s regulatory capital rule (capital rule) and Comprehensive Capital Analysis and Review (CCAR) and stress test rules. The proposal introduces a “stress capital buffer” (SCB) requirement which will replace the existing fixed capital conservation buffer requirement. Under the proposal, the size of the SCB will be based on the annual stress test and will be added to the bank’s capital requirements for the coming year. For globally systemically important banks (GSIB), a GSIB surcharge will be added to the determined SCB amount. According to the Board’s announcement, the amount of capital required for GSIBs will generally stay the same or somewhat increase, while non-GSIBs will generally see a modest decrease. Overall, the Board states that the changes would reduce the number of capital-related requirements from 24 to 14. Comments on the proposal are due 60 days after publication in the Federal Register.
FDIC proposes changes to annual stress test rule
On April 2, the FDIC published proposed technical changes to its annual stress testing rule. Specifically, the proposed rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board and the OCC to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the FDIC’s stress testing rule. The FDIC proposed changes are intended to align with the changes made by the Federal Reserve and the OCC (see previously InfoBytes coverage here). Comments on the proposal must be received by June 1.
OCC makes technical changes to stress testing rule; regulators submit unified stress test report for OMB approval
On February 23, the OCC finalized technical changes to its annual stress testing rule. Specifically, the final rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board (Fed) to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the OCC’s stress testing rule. The final rule takes effect March 26.
The same day, the Fed, the OCC, and the FDIC submitted a notice to the Office of Management and Budget (OMB) requesting approval of a new stress test report form (FFIEC 016) to be implemented for the stress test report due July 31. If approved, FFIEC 016 would replace the agencies’ three separate, yet identical, forms currently used to collect information from financial institutions and holding companies with total assets of more than $10 billion but less than $50 billion. Comments on the proposed change must be received on or before March 26.
Federal Reserve, FDIC, OCC release stress testing scenarios
On February 1, the Federal Reserve Board (Fed) published stress testing scenarios to be used when conducting the 2018 Comprehensive Capital Analysis and Review (CCAR) evaluations and stress test exercises for large bank holding companies and large U.S. operations of foreign firms. Instructions for participating banks also were released. According to the Fed, in an effort designed to “support the transition to stress testing,” foreign banks will only be required to participate in a “simplified global market shock” portion of the CCAR evaluation. As previously covered in InfoBytes, last December the Fed issued a request for comments on three proposals designed to increase stress testing transparency and resiliency of large, complex banks. This included a proposal to publicly release, for the first time, information concerning the models and methodologies used during supervisory stress tests, including those applied in the CCAR. According to the Fed’s press release, the qualitative and quantitative evaluations will be used to evaluate a bank’s ability to survive in times of economic stress and are broken into three scenarios with varying degrees of stress: baseline, adverse and severely adverse. The Fed reminded participating banks that capital plan and stress testing submissions are due by April 5.
The same day, the OCC issued its own stress testing scenarios for required OCC-supervised institutions with more than $10 billion in assets, and on February 2, the OCC released a notice and request for comments (notice) on revised templates to be used for stress test exercises performed by covered institutions with total consolidated assets of $50 billion or more. According to the notice, revisions would reduce the number of data items in the Supplemental Schedule by approximately half, and include (i) the elimination of two reporting schedules—the Regulatory Capital Transitions Schedule and the Retail Repurchase Exposures Schedule; (ii) the addition of new criteria for institutions subject to the global market shock evaluation; and (iii) clarification on how “Credit Loss Portion” and “Non-Credit Loss Portion” are reported in the summary schedule worksheets. Furthermore, under the revisions, savings associations would be eligible to use the simplified reporting requirements already available to other large, non-complex holding companies. The notice was published in the Federal Register on February 2 and comments are due by March 5.
Additionally, on February 6, the FDIC released economic scenarios developed in coordination with the Fed and the OCC for certain supervised financial institutions. According to the FDIC, the scenarios “include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.”
Federal Reserve Publishes Stress Test, CCAR FAQs
On January 8, the Federal Reserve Board (Fed) published an updated set of questions and answers to assist financial institutions in complying with the Dodd-Frank Act-mandated stress tests (DFAST) and Comprehensive Capital Analysis and Review (CCAR). According to the Fed, the FAQs are designed to provide answers concerning DFAST and CCAR reporting requirements and related guidance, and generally cover applicable questions that have been asked by covered financial institutions since August 1, 2017. The Fed instructs financial institutions that CCAR projections should only reflect new accounting standards if the standards were implemented prior to December 31 of the previous calendar year. For material business changes occurring in the fourth quarter of a year, financial institutions should discuss any changes that may materially impact the institution’s capital adequacy and funding profile in their CCAR filings. The Fed will review the information when making modelling projections and may request additional information. The Fed also explains the circumstances in which a bank is required to issue replacement capital to stay in compliance with its capital plan.