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  • Fed finalizes simplified capital rules for large banks

    Agency Rule-Making & Guidance

    On March 4, the Federal Reserve Board (Fed) released a final rule amending and simplifying the capital rules for large banks, as well as instructions for the 2020 Comprehensive Capital Analysis and Review (CCAR) cycle. The final rule, which is “broadly similar” to the Fed’s April 2018 proposal (covered by InfoBytes here), incorporates a simplified framework that integrates a “stress capital buffer” (SCB) requirement, which will use supervisory stress test results to establish the size of a firm’s stress capital buffer requirement. The stress test—one element of the annual CCAR—helps determine a firm’s capital requirements for the upcoming year. According to the Fed, “[b]y combining the Board’s stress tests—which project the capital needs of each firm under adverse economic conditions—with the Board’s non-stress capital requirements, large banks will now be subject to a single, forward-looking, and risk-sensitive capital framework.” The simplification would result in banks needing to meet eight capital requirements, instead of the current 13. Among other things, the final rule will also (i) increase capital requirements for global systemically important banks and decrease requirements for less complex banks; and (ii) continue to subject all banks to ongoing, non-stress leverage requirements.

    The final rule applies to bank holding companies and U.S. intermediate holding companies of foreign banking organizations with more than $100 billion in total consolidated assets, and will take effect 60 days after publication in the Federal Register, with a firm’s first stress capital buffer requirement, as determined under the final rule, effective October 1, 2020.

    Agency Rule-Making & Guidance Federal Reserve Stress Test CCAR Supervision Of Interest to Non-US Persons

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  • Fed, OCC issue 2020 stress test, capital adequacy scenarios

    Agency Rule-Making & Guidance

    On February 6, the Federal Reserve Board (Fed) released the hypothetical scenarios banks and supervisors will use to conduct the 2020 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress tests exercises for large bank holding companies and large U.S. operations of foreign firms. This year’s stress tests will evaluate 34 large banks with more than $100 billion in total assets to ensure that these banks have adequate capital and processes to continue lending to households and businesses, even during a severe recession. Both scenarios—baseline and severely adverse—include 28 variables that cover domestic and international economic activity. In addition, banks with large trading operations must also factor in a global market shock component as part of their scenarios. Capital plan and stress testing submissions are due by April 6. The Fed noted that it “continues to work toward having the stress capital buffer in place for this year’s stress tests,” and that “[t]he release of these hypothetical scenarios does not affect that separate rulemaking process.”

    In related news, on February 6 the OCC also released its own stress testing scenarios for OCC-supervised institutions.

    Agency Rule-Making & Guidance Federal Reserve CCAR Stress Test OCC Of Interest to Non-US Persons Dodd-Frank Supervision

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  • Federal Reserve releases Comprehensive Capital Analysis and Review results

    Federal Issues

    On June 27, the Federal Reserve (Fed) released the results of the Comprehensive Capital Analysis and Review (CCAR) conducted for 18 banking firms. The Fed considers quantitative and qualitative factors in its evaluation, including projected capital ratios under hypothetical severe economic conditions and the strength of the firm’s capital planning process, including its risk management, internal controls, and governance practices. The Fed did not object to the capital plans of any of the 18 firms, but did require one to address “limited weaknesses” the test identified. The Fed noted that, “On balance, virtually all firms are now meeting the Federal Reserve's capital planning expectations, which is an improvement from last year's assessment. The firms in the test have significantly increased their capital since the first round of stress tests in 2009.”

    Federal Issues Federal Reserve CCAR Stress Test

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  • Federal Reserve to phase out Comprehensive Capital Analysis and Review (CCAR) “qualitative objection”

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Reserve CCAR Stress Test Of Interest to Non-US Persons

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  • Federal Reserve releases CCAR scenarios; “less-complex” firms exempt from 2019 stress tests

    Agency Rule-Making & Guidance

    On February 5, the Federal Reserve Board (Fed) released the scenarios banks and supervisors will use to conduct the 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress tests exercises for large bank holding companies and large U.S. operations of foreign firms. Each of the three scenarios—baseline, adverse, and severely adverse—include 28 variables that cover domestic and international economic activity. The Fed noted that “less-complex” firms with total consolidated assets between $100 billion and $250 billion have been moved to an extended stress test cycle for the 2019 cycle. (See related InfoBytes coverage here.) Capital plan and stress testing submissions are due by April 5.

    In addition, the Fed finalized enhanced disclosures of the stress testing models used in annual CCARs beginning in 2019, which will be updated each year. The Fed also amended its policy regarding the economic scenario design framework for stress testing, and adopted a policy statement on prior disclosures, which outlines the Fed’s approach to model development, implementation, and validation. The changes are designed to increase the transparency of the stress testing exercises and provide significantly more information for firms.

    In related news, also on February 5, the OCC released its own stress testing scenarios for OCC-supervised institutions.

    Agency Rule-Making & Guidance Federal Reserve CCAR Stress Test OCC EGRRCPA Of Interest to Non-US Persons

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  • OCC proposes changes to annual stress test reporting requirements

    Agency Rule-Making & Guidance

    On October 31, the OCC published in the Federal Register proposed changes to its “stress test” rules for covered financial institutions, as required by the Dodd-Frank Act. The proposal would, among other things, (i) revise the OCC reporting requirements to mirror the Federal Reserve Board’s proposed Comprehensive Capital Analysis and Review (CCAR) reporting form FR Y-14A for covered institutions with total consolidated assets of $100 billion or more; (ii) implement the revised asset threshold mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act; and (iii) remove the Retail Repurchase worksheet. Comments on the proposed changes must be received by December 31.

    Agency Rule-Making & Guidance OCC CCAR Stress Test EGRRCPA Federal Register Dodd-Frank

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  • Federal Reserve releases Comprehensive Capital Analysis and Review results

    Federal Issues

    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 Issues Federal Reserve CCAR Stress Test

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  • Federal Reserve proposes changes to simplify capital rules for large banks

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Stress Test CCAR Capital Requirements Federal Reserve Federal Register

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  • Federal Reserve, FDIC, OCC release stress testing scenarios

    Federal Issues

    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 Issues Federal Reserve Stress Test CCAR Bank Holding Companies FDIC OCC

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  • Federal Reserve Publishes Stress Test, CCAR FAQs

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Reserve Stress Test CCAR Dodd-Frank

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