Comprehensive Capital Analysis and Review 2014: Assessment Framework
and Results
Print- Introduction
- Summary of Results
- Assessment Framework
Assessment Framework
On November 1, 2013, the Federal Reserve issued instructions for the CCAR 2014 exercise, and on January 6, 2014, the Federal Reserve received capital plans from 30 BHCs.16 BHCs that participated in CCAR were required to include in their capital analysis and capital plans the results of their company-run stress tests based on three supervisory scenarios as required by the Board's Dodd-Frank Act stress test rules: the supervisory baseline, supervisory adverse, and supervisory severely adverse scenarios.17 While the same supervisory scenarios generally applied to all BHCs, a subset of BHCs was subject to additional scenario components--the trading and counterparty component (global market shock) and counterparty default component. Six BHCs with large trading and private equity exposures were required to include a global market shock component as part of their supervisory severely adverse and adverse scenarios, and to conduct a stress test of those exposures.18 The same six BHCs, and two other BHCs with substantial custodial operations, were also required to incorporate a counterparty default component into their supervisory severely adverse and supervisory adverse scenarios.19 In addition to the three supervisory scenarios, BHCs were also required to conduct a stress test using at least one stress scenario developed by the BHC (BHC stress) and a BHC baseline scenario.
The CCAR review was conducted by a broad range of Federal Reserve staff, including senior bank supervisors, financial analysts, accounting and legal experts, economists, risk-management specialists, financial-risk modelers, regulatory capital analysts, and the on-site examiners responsible for each of the 30 BHCs. This multidisciplinary approach brings diverse perspectives to the Federal Reserve's assessment of the BHCs' capital plans. As in previous years, the Federal Reserve also worked and consulted with the primary federal banking agencies for the BHCs' subsidiary insured depository institutions--the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The annual CCAR exercise continues to enhance supervisors' understanding of the underlying processes used by each BHC to assess the adequacy of the size and composition of capital relative to the risks faced by the BHC. The results of these comprehensive capital plan reviews also serve as inputs into other aspects of the Federal Reserve's development of its supervisory strategy for these BHCs, and factor into supervisory assessments of each BHC's risk management, corporate governance and control processes, and financial condition.
References
16. See Board of Governors of the Federal Reserve System (2013), "Comprehensive Capital Analysis and Review 2014: Summary Instructions and Guidance" (Washington: Board of Governors, November 2013), www.federalreserve.gov/newsevents/press/bcreg/bcreg20131101a2.pdf Return to text
17. 12 U.S.C. 5365(i)(2); 12 CFR part 252, subpart E. The Federal Reserve published a summary of the results of the Dodd-Frank Act supervisory stress test on March 20, 2014. See Board of Governors of the Federal Reserve Board (2014), "Dodd-Frank Act Stress Test 2014: Supervisory Stress Test Methodology and Results" (Washington: Board of Governors, March 24),
www.federalreserve.gov/newsevents/press/bcreg/bcreg20140320a1.pdf. Return to text
18. The six BHCs subject to the global market shock are Bank of America Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; and Wells Fargo & Company. See 12 CFR 252.134(b); see also 12 CFR 252.144(b)(2)(i). Return to text
19. Specifically, these eight BHCs were required to estimate and report the potential losses and related effects on capital associated with the instantaneous and unexpected default of their largest counterparty across their derivatives, securities lending, and repurchase/reverse repurchase agreement (collectively, Securities Financing Transactions or SFT) activities. The eight BHCs subject to the counterparty default component are Bank of America Corporation; The Bank of New York Mellon Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; and Wells Fargo & Company. See 12 CFR 252.144(b)(2)(ii). Return to text
