Summary of Results

The Board conducted qualitative and quantitative assessments of a firm's capital plan and either objected to, or provided a non-objection to, each of the 30 BHCs' capital plans. The qualitative assessment focuses on the strength of the BHCs' capital plans and supporting practices.⁵ The Federal Reserve conducts its quantitative assessment based on the supervisory stress test conducted under the Board's rules implementing the stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act stress tests), combined with the BHCs' planned capital actions under the BHC baseline scenario. (For a comparison of the Dodd-Frank Act stress tests and CCAR, see box 3).

The qualitative assessments carried out by the Federal Reserve are a critical component of the CCAR review. BHCs that were part of CCAR this year differ significantly in their size, complexity, geographic footprint, and business models. Reflecting these differences, each firm is expected to focus on the idiosyncratic risks it faces when conducting its internal stress tests and capital planning. Such a focus on individual risks is not something that can be fully captured when running a standardized stress test. Therefore, even if the supervisory stress test for a given BHC results in a post-stress tier 1 common ratio exceeding 5 percent and post-stress regulatory capital ratios above the minimum requirements, the Federal Reserve could object to that BHC's capital plan based on a qualitative assessment of the practices supporting its capital planning.⁶ In the CCAR qualitative assessment, the Federal Reserve evaluated

• the extent to which the analysis underlying each BHC's capital plan captured and appropriately addressed potential risks stemming from all activities across the consolidated institution under baseline and stressed operating conditions;
• the robustness of the BHC's capital planning process, including supporting risk-identification, risk-measurement, and risk-management practices; the reasonableness of the assumptions and analysis underlying the capital plan; and
• corporate governance and internal controls over the capital-planning process, including the BHC's capital policies as approved by its board of directors.

The Federal Reserve's qualitative assessment of BHCs' capital plans in CCAR 2014 reflects differing expectations across the various aspects of BHCs' capital planning processes for BHCs of different sizes, scopes of operations, activities, and systemic importance. For example, the Federal Reserve has significantly heightened supervisory expectations for the largest and most complex BHCs--in all aspects of capital planning--and expects these BHCs to have the most sophisticated, comprehensive, and robust capital planning practices.

In the CCAR quantitative assessment, the Federal Reserve evaluated each BHC's ability to take all capital actions detailed in the BHC baseline scenario in its capital plan while maintaining post-stress capital ratios of greater than 5 percent tier 1 common capital and above the applicable required regulatory minimum levels in effect during each of the nine quarters of the planning horizon. The CCAR quantitative assessment is based on the results of the BHCs' company-run stress tests and post-stress capital ratios estimated by the Federal Reserve (CCAR post-stress capital analysis).

In this cycle, as in CCAR 2013, the Federal Reserve provided each BHC with an opportunity to adjust its planned capital distributions after receiving the Federal Reserve's preliminary estimates of the BHC's post-stress capital ratios. The only adjustment permitted was a reduction of the planned capital distributions that were submitted by the BHCs in their January 2014 capital plans. These adjusted capital actions, where applicable, were then incorporated into the Federal Reserve's projections to calculate the adjusted post-stress capital levels and ratios. For BHCs that submitted an adjusted capital distribution, the Federal Reserve is disclosing the minimum projected capital ratios using both the originally submitted planned capital actions and the adjusted planned capital actions. (See tables 6.A, 6.B, 7.A, and 7.B for the projected capital ratios for all BHCs under the supervisory severely adverse and supervisory adverse scenarios.)

When 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.⁷ Typically in the past when the Federal Reserve has objected to a BHC's capital plan, it has denied any increase in a BHC's capital distributions from the prior year but has not required a reduction in distributions, reflecting the modest amount of capital distributions from BHCs in recent years. However, the Federal Reserve could require a BHC to reduce or cease all capital distributions if it felt that the weaknesses in the BHC's capital planning warranted such a response. This year, as in past cases in which there have been objections to capital plans, the Federal Reserve did not object to a continuation of the BHCs' current capital distributions.

While the nine-quarter planning horizon contained in the 2014 capital plans extends through the end of 2015, the Federal Reserve's decision to object or not object to BHCs' planned capital actions is carried out annually and applies only to the four quarters beginning with the second quarter of the current year and running through the end of the first quarter of the following year.⁸ The Federal Reserve evaluates planned capital actions for the full nine-quarter planning horizon to better understand each BHC's longer-term capital management strategy and to assess post-stress capital levels over the full planning horizon.⁹

The Federal Reserve did not object to the capital plan and planned capital distributions for BHCs listed in the "Non-objection to capital plan" column in table 2. The Federal Reserve objected to the capital plans of each BHC listed in the "Objection to capital plan" column in the table. Each of these BHCs either did not meet the CCAR minimum post-stress capital ratio requirements or had deficiencies in its capital planning process that undermine the overall reliability of the BHC's capital planning process.

Table 2. Summary of the Federal Reserve's actions on capital plans in CCAR 2014

Non-objection to capital plan	Objection to capital plan
Ally Financial Inc.	Citigroup Inc.
American Express Company	HSBC North America Holdings Inc.
Bank of America Corporation	RBS Citizens Financial Group, Inc.
The Bank of New York Mellon Corporation	Santander Holdings USA, Inc.
BB&T Corporation	Zions Bancorporation
BBVA Compass Bancshares, Inc.
BMO Financial Corp.
Capital One Financial Corporation
Comerica Incorporated
Discover Financial Services
Fifth Third Bancorp
The Goldman Sachs Group, Inc.
Huntington Bancshares Incorporated
JPMorgan Chase & Co.
KeyCorp
M&T Bank Corporation
Morgan Stanley
Northern Trust Corporation
The PNC Financial Services Group, Inc.
Regions Financial Corporation
State Street Corporation
SunTrust Banks, Inc.
U.S. Bancorp
UnionBanCal Corporation
Wells Fargo & Company

The Board of Governors objected to the capital plans of Citigroup Inc.; HSBC North America Holdings Inc.; RBS Citizens Financial Group, Inc.; and Santander Holdings USA, Inc. based on the qualitative assessments conducted by the Federal Reserve in CCAR 2014. Zions Bancorporation's capital plan received an objection from the Federal Reserve based on the quantitative assessment. These BHCs are not permitted to implement their requested plans for increased capital distributions, and are required to resubmit their capital plans to the Federal Reserve following substantial remediation of the issues that led to the objections, consistent with the requirements in the Federal Reserve's capital plan rule.¹⁰

Table 3. 2014 CCAR BHCs and minimum capital ratios

Advanced approaches BHCs for CCAR 2014 1
American Express	Bank of America	Bank of NY-Mellon	Capital One
Citigroup	Goldman Sachs	HSBC	JPMorgan Chase
Morgan Stanley	Northern Trust	PNC	State Street
U.S. Bancorp	Wells Fargo
Minimum capital ratios for advanced approaches BHCs in CCAR 2014 2
	Q4 2013	2014	2015
Tier 1 common ratio	5 percent	5 percent	5 percent
Common equity tier 1 ratio	n.a.	4 percent	4.5 percent
Tier 1 risk-based capital ratio	4 percent	5.5 percent	6 percent
Total risk-based capital ratio	8 percent	8 percent	8 percent
Tier 1 leverage ratio	3 or 4 percent	4 percent	4 percent
Other BHCs for CCAR 2014
Ally	BB&T	BBVA Compass	BMO
Comerica	Discover	Fifth Third	Huntington
KeyCorp	M&T	RBS Citizens	Regions
Santander	SunTrust	UnionBanCal	Zions
Minimum capital ratios for other BHCs in CCAR 2014
	Q4 2013	2014	2015
Tier 1 common ratio	5 percent	5 percent	5 percent
Common equity tier 1 ratio	n.a.	n.a.	4.5 percent
Tier 1 risk-based capital ratio	4 percent	4 percent	6 percent
Total risk-based capital ratio	8 percent	8 percent	8 percent
Tier 1 leverage ratio	3 or 4 percent	3 or 4 percent	4 percent

1. For purposes of CCAR 2014, an advanced approaches BHC includes any BHC that has consolidated assets greater than or equal to $250 billion or total consolidated on-balance sheet foreign exposure of at least $10 billion as of December 31, 2013. See 12 CFR 217.100(b)(1); 12 CFR part 225, appendix G, section 1(b). Other BHCs include any BHC that is subject to 12 CFR 225.8 and is not an advanced approaches BHC. Return to table

2. The tier 1 common ratio is calculated for each quarter of the planning horizon using the definition of tier 1 capital and total risk-weighted assets in effect as of October 1, 2013. All other ratios are calculated using the definitions of capital and approaches to risk weighting assets that are in effect during a particular planning horizon quarter. See "Regulations Y and YY: Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules," 79 Federal Register 13498 (March 11, 2014). Return to table

n.a. Not applicable.

Table 4. Projected minimum tier 1 common ratio, Q4 2013-Q4 2015
Federal Reserve estimates in the severely adverse scenario

Bank holding company	Stressed ratio with original planned capital actions	Stressed ratio with adjusted planned capital actions
Ally	6.3
American Express	8.4
Bank of America	5.0	5.3
The Bank of NY-Mellon	12.7
BB&T	8.1
BBVA Compass	8.1
BMO	7.6
Capital One	5.6
Citigroup	6.5
Comerica	7.8
Discover	8.7
Fifth Third	7.5
Goldman Sachs	5.7	6.1
HSBC	6.6
Huntington	6.0
JPMorgan Chase	5.5
KeyCorp	8.0
M&T	6.7
Morgan Stanley	5.9
Northern Trust	10.0
PNC	8.1
RBS Citizens	9.0
Regions	8.2
Santander	7.9
State Street	11.4
SunTrust	8.0
U.S. Bancorp	6.6
UnionBanCal	9.7
Wells Fargo	6.1
Zions	4.4

Note: These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of capital ratios. The tables include the minimum ratios assuming the capital actions originally submitted in January 2014 by the BHCs in their annual capital plans and the minimum ratios incorporating any adjustments to capital distributions made by BHCs after reviewing the Federal Reserve's stress test projections. The projected tier 1 common ratio is calculated using the definitions of tier 1 capital and total risk-weighted assets in effect at the start of the capital planning cycle in 2013, without incorporating the new definitions from the revised capital framework issued in July 2013.

Table 5. Projected minimum tier 1 common ratio, Q4 2013-Q4 2015
Federal Reserve estimates in the adverse scenario

Bank holding company	Stressed ratio with original planned capital actions	Stressed ratio with adjusted planned capital actions
Ally	7.6
American Express	10.6
Bank of America	8.4	8.4
Bank of NY Mellon	13.5
BB&T	9.1
BBVA Compass	10.9
BMO	9.9
Capital One	10.1
Citigroup	9.3
Comerica	9.7
Discover	11.0
Fifth Third	8.9
Goldman Sachs	7.2	8.0
HSBC	11.1
Huntington	8.6
JPMorgan Chase	8.3
KeyCorp	9.8
M&T	8.7
Morgan Stanley	8.5
Northern Trust	11.4
PNC	9.9
RBS Citizens	11.5
Regions	10.5
Santander	10.5
State Street	13.4
SunTrust	9.6
U.S. Bancorp	8.6
UnionBanCal	11.5
Wells Fargo	8.7
Zions	8.1

Note: These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of capital ratios. The tables include the minimum ratios assuming the capital actions originally submitted in January 2014 by the BHCs in their annual capital plans and the minimum ratios incorporating any adjustments to capital distributions made by BHCs after reviewing the Federal Reserve's stress test projections. The projected tier 1 common ratio is calculated using the definitions of tier 1 capital and total risk-weighted assets in effect at the start of the capital planning cycle in 2013, without incorporating the new definitions from the revised capital framework issued in July 2013.

Reasons for Objections to Specific BHCs' Capital Plans

The Federal Reserve's objection to Citigroup's CCAR 2014 capital plan in part reflects significantly heightened supervisory expectations for the largest and most complex BHCs in all aspects of capital planning.¹¹ While Citigroup has made considerable progress in improving its general risk-management and control practices over the past several years, its 2014 capital plan reflected a number of deficiencies in its capital planning practices, including in some areas that had been previously identified by supervisors as requiring attention, but for which there was not sufficient improvement. Practices with specific deficiencies included Citigroup's ability to project revenue and losses under a stressful scenario for material parts of the firm's global operations, and its ability to develop scenarios for its internal stress testing that adequately reflect and stress its full range of business activities and exposures. Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but, when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup's capital planning process to warrant an objection to the capital plan and require a resubmission.

The Federal Reserve also objected on qualitative grounds to the capital plans of three institutions--HSBC, RBS Citizens, and Santander--that are all new to CCAR in 2014. As the Federal Reserve has noted previously, BHCs that are new to CCAR may face challenges in developing appropriate capital planning processes that meet the Federal Reserve's high expectations. Although the Federal Reserve has different expectations for BHCs new to CCAR, weaknesses at HSBC, RBS Citizens, and Santander were considered significant enough to warrant an objection based on the Federal Reserve's qualitative assessment.

The Federal Reserve objected to the capital plans from HSBC and RBS Citizens due to significant deficiencies in their capital planning processes, including inadequate governance and weak internal controls around the processes. The Federal Reserve identified deficiencies in RBS Citizens's practices for estimating revenue and losses under a stress scenario and for ensuring the appropriateness of loss estimates across business lines given a specific stress scenario. With regard to HSBC, the Federal Reserve found specific deficiencies in HSBC's practices for estimating revenue and losses for material aspects of its operations under a stress scenario.

The Federal Reserve objected to the capital plan from Santander due to widespread and significant deficiencies across the BHC's capital planning processes. Specific deficiencies were identified in several areas, including governance, internal controls, risk-identification and risk-management, management information system (MIS), and assumptions and analysis that support the BHC's capital planning processes.

With regard to HSBC, RBS Citizens, and Santander, the identified deficiencies in their capital planning processes are sufficiently material to call into question the overall reliability of their capital planning processes and raise concerns that warrant an objection and require resubmission of the capital plan.

The Federal Reserve objected to the capital plan from Zions Bancorporation on quantitative grounds. More specifically, the BHC's minimum post-stress tier 1 common ratio under the supervisory post-stress capital analysis fell below the required 5 percent minimum. The firm is required to submit a new capital plan based on the quantitative results of the stress test. No critical qualitative deficiencies in the firm's capital planning processes were identified.

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Results of Quantitative Assessment

In July 2013, the Board adopted a revised regulatory capital framework that implements the Basel III regulatory capital reforms and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (revised capital framework).¹² The phase-in for the revised capital framework begins during the 2014 CCAR planning horizon and therefore affects the calculation and applicable minimum requirements for regulatory capital ratios and also introduces a new common equity tier 1 ratio. Each BHC must meet the regulatory capital requirements for each projected quarter of the planning horizon in accordance with the capital requirements that will be in effect during that quarter.¹³

As in previous years, BHCs must also maintain a post-stress tier 1 common capital ratio of 5 percent over all quarters of the planning horizon, which provides comparability with the quantitative assessment in previous CCAR exercises.¹⁴ See table 3 for the minimum capital ratios in effect for the period covered by CCAR 2014 for large BHCs and those with significant foreign exposures (advanced approaches BHCs) and for other BHCs.¹⁵ As the revised capital framework phases in, BHCs must have higher post-stress capital ratios in the later quarters of the planning horizon to meet higher minimum regulatory requirements. (See box 2 for examples of how the minimum capital requirements from revised capital framework affect BHCs in CCAR 2014.)

Tables 4 and 5 contain minimum post-stress tier 1 common ratios for each of the 30 BHCs under the supervisory severely adverse and supervisory adverse scenarios. The middle column of the table incorporates the original planned capital distributions included in the capital plans submitted by the BHCs in January 2014. The ratios reported in the right-hand column of the table incorporate any adjusted capital distributions submitted by a BHC after receiving the Federal Reserve's preliminary CCAR post-stress capital analysis. Each BHC in CCAR 2014 must maintain a minimum post-stress tier 1 common ratio of 5 percent in each quarter of the planning horizon in the supervisory severely adverse and supervisory adverse scenarios.

Tables 6.A and 6.B report minimum capital ratios under the supervisory severely adverse scenario based on both the original and adjusted planned capital actions. The ratios based on adjusted capital actions are only reported for those BHCs that submitted adjustments. In the aggregate, the minimum level of each of the five capital ratios falls throughout the planning horizon, with the minimum level of each capital ratio occurring in 2015. In the aggregate, the projected minimum post-stress capital ratios, based on the original planned capital actions, fell between 3.1 and 5.3 percentage points from the third-quarter 2013 starting values (see table A.1.A). There is considerable variation across BHCs in the extent of the decline in capital ratios under the severely adverse scenario: for example, based on tables 6.A. and 6.B., the change in the tier 1 common ratio from start to minimum varies between -1.3 and -8.5 percentage points under the severely adverse scenario incorporating the original capital actions submitted in the BHCs' capital plans.

In the supervisory severely adverse scenario, three BHCs--Bank of America Corporation; The Goldman Sachs Group, Inc.; and Zions Bancorporation--were projected to have at least one minimum post-stress capital ratio fall below regulatory minimum levels based on their original planned capital actions. Zions fell below the minimum required post-stress tier 1 common ratio; Goldman Sachs fell below the required post-stress tier 1 leverage ratio; and Bank of America fell below both the required post-stress tier 1 risk-based capital ratio and the tier 1 leverage ratio. (See the applicable minimum capital ratios for advanced approaches BHCs provided in table 6.A and the applicable capital ratios for other BHCs provide in table 6.B.) Bank of America and Goldman Sachs were able to maintain post-stress regulatory capital ratios above minimum requirements in the severely adverse scenario after submitting adjusted capital actions. Zions did not submit adjusted capital actions.

Tables 7.A and 7.B report minimum capital ratios in the supervisory adverse scenario based on both the original and adjusted planned capital actions. Similar to the supervisory severely adverse scenario, the aggregate post-stress capital ratios declined through the planning horizon in the supervisory adverse scenario, with the minimum for each of the aggregate capital ratios occurring in 2015. The minimum capital ratios were generally higher in the supervisory adverse scenario than in the supervisory severely adverse scenario. The capital ratios generally declined in the adverse scenario, but there was considerable variation across the BHCs.

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References

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