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Board of Governors of the Federal Reserve System
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Dodd-Frank Act Stress Test 2016: Supervisory Stress Test Methodology and Results

Preface

The Federal Reserve promotes a safe, sound, and stable banking and financial system that supports the growth and stability of the U.S. economy through its supervision of bank holding companies (BHCs), savings and loan holding companies, state member banks, and nonbank financial institutions that the Financial Stability Oversight Council (FSOC) has determined shall be supervised by the Board of Governors of the Federal Reserve System.1

The Federal Reserve has established frameworks and programs for the supervision of its largest and most complex financial institutions to fulfill its supervisory objectives and to reorient its supervisory program in response to the lessons learned from the financial crisis. As part of these supervisory frameworks and programs, the Federal Reserve annually assesses whether BHCs with $50 billion or more in total consolidated assets have effective capital planning processes and sufficient capital to absorb losses during stressful conditions while meeting obligations to creditors and counterparties and continuing to serve as credit intermediaries. This annual assessment includes two related programs:

  • The Comprehensive Capital Analysis and Review (CCAR) evaluates a BHC's capital adequacy, capital planning process, and planned capital distributions, such as any dividend payments and common stock repurchases. As part of CCAR, the Federal Reserve evaluates whether BHCs have sufficient capital to continue operations throughout times of economic and financial market stress and whether they have robust, forward-looking capital-planning processes that account for their unique risks. The Federal Reserve may object to a BHC's capital plan on quantitative or qualitative grounds. If the Federal Reserve objects to a BHC's capital plan, the BHC may not make any capital distribution unless the Federal Reserve indicates in writing that it does not object to the distribution.
  • Dodd-Frank Act supervisory stress testing is a forward-looking quantitative evaluation of the impact of stressful economic and financial market conditions on BHC capital. This program serves to inform the Federal Reserve, the financial companies, and the general public of how institutions' capital ratios might change under a hypothetical set of economic conditions developed by the Federal Reserve.2 The supervisory stress test, after incorporating firms' planned capital actions, is also used for quantitative assessment in CCAR.

References

1. Information on the Federal Reserve's regulation and supervision function, including more detail on stress testing and capital planning assessment, is available on the Federal Reserve website at www.federalreserve.gov/bankinforeg/default.htm. Return to text

2. In addition to an annual supervisory stress test conducted by the Federal Reserve, each BHC is required to conduct annual company-run stress tests under the same supervisory scenarios and conduct a mid-cycle stress test under company-developed scenarios. Return to text

Last update: August 9, 2016

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