Instructions for Submission of Capital Plans

This instructions document provides

• general logistics for BHCs' capital plan submissions;
• guidelines surrounding the mandatory elements of a capital plan;
• information about the Federal Reserve's qualitative assessment of each BHC's capital plan during CCAR 2014;
• description of the Federal Reserve's quantitative assessment of post-stress capital;
• information on the Federal Reserve's response to capital plans and planned actions;
• limited adjustments BHCs may make to their planned capital distributions during the CCAR exercise;
• a discussion of planned disclosures at the end of the CCAR exercise; and
• information related to possible required resubmissions following CCAR.

BHCs should refer to the Federal Reserve's Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice (available at http://www.federalreserve.gov/bankinforeg/stress-tests/ccar/August-2013-Introduction.htm) for further guidance about supervisory expectations for a BHC's capital planning process.

Submission Format and Timing

Each BHC's capital plan, along with any proposals for planned capital actions in the BHC baseline scenario or alternative capital actions in the BHC stress scenario, must be approved by the BHC's board of directors, or committee thereof, and submitted to the Federal Reserve no later than January 5 of each calendar year in accordance with the capital plan rule. As noted earlier, the Federal Reserve may extend this date. For CCAR 2014, capital plans and proposals for capital actions must be received no later than Monday, January 6.

In connection with the annual CCAR exercise, the Federal Reserve will use the data and information provided in the FR Y-14A, FR Y-14Q, and FR Y-14M regulatory reports as of September 30, 2013 (except for trading and counterparty data, as discussed in more detail below). BHCs should reference the instructions associated with each schedule to determine the appropriate submission date for each regulatory report.¹⁴ Data reported on the FR Y-14Q and FR Y-14M schedules will be used as the primary input to the annual supervisory stress test conducted by the Federal Reserve under the DFA stress test rules and will be used in the CCAR analysis. BHCs will report on the FR Y-14A schedules their estimates of losses, resources available to absorb those losses, balance sheet positions, and capital composition on a quarterly basis over the nine-quarter planning horizon, under each scenario, beginning with the fourth quarter of the current calendar year.

BHCs are also required to submit qualitative information supporting their loss and pre-provision net revenue (PPNR) estimates, including descriptions of the methodologies used to produce the estimates, as well as any other analyses that support their capital plans.

Each BHC must submit its capital plan and any supporting information, including the FR Y-14A and FR Y-14Q schedules, to the Federal Reserve through a secure collaboration site. BHCs should continue to submit FR Y-14M schedules using established processes outlined within the instructions for each regulatory report.¹⁵

Back to section top

Coverage of the Submission

CCAR is a comprehensive assessment that takes into account all relevant risks to the BHC, such as estimates of potential losses and the impact of the stress scenarios on net revenues, including any that are not explicitly covered by the information requested in the FR Y-14A, FR Y-14Q, and FR Y-14M schedules. It is the responsibility of each BHC to capture all potential sources of losses from all on- and off-balance sheet positions, as well as any other events that have the potential to impact capital in both baseline and stressful environments. Notably, the Federal Reserve will place particular focus on assessing a BHC's internal stress scenario analysis as part of the supervisory assessment of the completeness and suitability of each BHC's capital plan.¹⁶

A BHC's submission of its pro forma, post-stress capital projections in its capital plan, inclusive of planned or alternative capital actions, must begin with data as of September 30, and span the nine-quarter planning horizon, beginning in the fourth quarter of the current calendar year and concluding at the end of the fourth quarter, two years out. For CCAR 2014, the planning horizon will commence at the beginning of the fourth quarter of 2013 (October 1, 2013) and conclude at the end of the fourth quarter of 2015 (December 31, 2015). The only exception to this planning horizon is with respect to the Regulatory Capital Transitions schedule submission required under the FR Y-14A. This schedule was formerly known as the Basel III and Dodd-Frank schedule. The Regulatory Capital Transitions schedule should be reported as of September 30, 2013, with projections through December 31, 2018, under the supervisory baseline scenario.

Back to section top

Incomplete Data

In general, all BHCs are required to report all data elements asked for in the FR Y-14A, FR Y-14Q, and FR Y-14M schedules; however, certain schedules, worksheets, or data elements may be optional for a BHC. The instructions for the FR Y-14A, FR Y-14Q, and FR Y-14M schedules provide details on how to determine whether a BHC must submit a specific schedule, worksheet, or data element.

Under the capital plan rule, failure to submit complete data to the Federal Reserve in a timely manner may be a basis for objection to a capital plan.¹⁷ A BHC's inability to provide required data by the due dates may affect supervisory estimates of losses and PPNR for the BHC, and bears on the Federal Reserve's qualitative assessment of the internal risk-measurement and risk-management practices supporting a BHC's CAP.

For the FR Y-14Q and FR Y-14M schedules, BHCs may be asked to resubmit data--either in whole or in part--after the initial due date as specified in the associated report instructions if required data elements are missing or if errors are found during the data validation process.¹⁸ All resubmissions of FR Y-14Q and FR Y-14M data as of September 30 will be due on or before December 31 of the current calendar year. After this date, the Federal Reserve will adhere to the following guidelines on any remaining FR Y-14Q and FR Y-14M data-related issues, for the purpose of producing supervisory estimates.

• Missing data or data deficiency: If a BHC's submitted data quality is deemed to be too deficient to produce a robust supervisory model estimate for a particular portfolio, the Federal Reserve may assign a high loss rate (e.g., 90th percentile) or a conservative PPNR rate (e.g., 10th percentile) based on portfolio losses or PPNR estimated for other BHCs. If data that are direct inputs to supervisory models are missing or reported erroneously but the problem is isolated in a way that the existing supervisory framework can still be used, a conservative value (e.g., 10th or 90th percentile) based on all available data will be assigned to the specific data.
• Immaterial portfolio: Each BHC has the option to either submit or not submit the relevant data schedule for a given portfolio that does not meet a materiality threshold (as defined in FR Y-14Q and FR Y-14M instructions). If the BHC does not submit data on its immaterial portfolio(s), the Federal Reserve will assign a conservative loss rate (e.g., 75th percentile), based on the estimates for other BHCs. Otherwise, the Federal Reserve will estimate losses using data submitted by the BHC.

For the FR Y-14A schedules, BHCs should submit final and complete data for CCAR 2014 by January 6. BHCs may be asked to resubmit data--either in whole or in part--after this due date should errors or omissions be found; however, failure to submit complete data to the Federal Reserve in a timely manner may be a basis for objection to a capital plan.

Back to section top

Company-Run Stress Testing

For purposes of CCAR, BHCs will be required to submit the results of company-run stress tests based on three supervisory scenarios (DFA supervisory stress test scenarios), at least one stressed scenario developed by the BHC, and a BHC baseline scenario, as follows:

• BHC baseline: a BHC-defined baseline scenario ¹⁹
• BHC stress: at least one BHC-defined stress scenario
• Supervisory baseline: a baseline scenario provided by the Federal Reserve under the DFA stress test rules
• Supervisory adverse: an adverse scenario provided by the Federal Reserve under the DFA stress test rules
• Supervisory severely adverse: a severely adverse scenario provided by the Federal Reserve under the DFA stress test rules

The Federal Reserve will incorporate both the supervisory stress test results and the BHC's ability to sufficiently capture its unique vulnerabilities within the BHC scenarios into the overall supervisory assessment of each BHC's capital plan. The Federal Reserve will focus particular attention on the processes surrounding the development and implementation of the BHC stress scenario to ensure that

• these processes are robust;
• the scenario captures and stresses key vulnerabilities and idiosyncratic risks facing the BHC, including any vulnerabilities that are not particularly well captured by scenario analysis based on a stressed macroeconomic environment or severe recession;
• the scenario results in a substantial strain on the BHC's ability to generate revenue and absorb losses and a significant reduction in post-stress capital ratios relative to baseline projections; and
• the translation of the scenario into loss, revenue, and post-stress capital projections is conceptually sound and implemented in a well-controlled manner.

While the BHC stress scenario is expected to be severe enough to result in a substantial negative impact on capital, a BHC stress scenario that produces post-stress capital ratios lower than those under the supervisory severely adverse scenario is not, in and of itself, a safe harbor. It is critical that the BHC stress scenario be well designed to capture potential risks stemming from a BHC's idiosyncratic positions and activities.

Supervisory Scenarios

Under the DFA stress test rules, the Federal Reserve must provide BHCs with a description of the supervisory macroeconomic scenarios no later than November 15 of each calendar year.²⁰ For CCAR 2014, the Federal Reserve is making the supervisory macroeconomic scenarios available concurrently with these instructions. The Federal Reserve will provide the global market shocks to the appropriate BHCs by December 1, 2013. It is important to note that the scenarios provided by the Federal Reserve are not forecasts, but rather hypothetical scenarios to be used to assess the strength and resilience of BHC capital in baseline and stressed economic and financial market environments.

The Federal Reserve will evaluate the BHC's pro forma, post-stress capital ratios resulting from the combination of stress performance measures (e.g., revenues, losses, and reserves from the supervisory adverse and severely adverse scenarios) and the BHC's planned capital actions (e.g., planned dividends, issuances, and repurchases as provided in the BHC baseline scenario) against each minimum regulatory capital ratio and a 5 percent tier 1 common ratio in each of the nine-quarter planning horizon.

For the BHC-defined scenarios, a BHC should include only one capital worksheet within each FR Y-14A Summary schedule, and include pro forma projections using the BHC's expected capital actions as deemed appropriate by the BHC for that scenario and in accordance with the BHC's capital policy. For the supervisory scenarios, a BHC should include two sets of pro forma projections, reported in two separate capital worksheets within the FR Y-14A Summary schedule--one set of projections using the BHC's planned capital actions under the BHC baseline scenario and another set using the DFA stress test capital action assumptions.

The following definitions and table 2 illustrate the number of capital worksheet requirements for each scenario's FR Y-14A schedule.

• Planned capital actions: a BHC's planned capital actions under the BHC baseline scenario
• Alternative capital actions: a BHC's assumed capital actions under the BHC stress scenario
• DFA stress test capital actions: capital action assumptions as required under the DFA stress test rules ²¹

Six BHCs with large trading operations will be required to include the global market shock as part of their supervisory adverse and severely adverse scenarios, and to conduct a stress test of their trading books and private equity positions (including their credit valuation adjustments, or CVAs) as of October 16, 2013.²² The Federal Reserve will provide a set of hypothetical shocks to the risk factors most relevant to the trading and counterparty positions. As in the previous year, for CCAR 2014, these BHCs will also be required to submit additional data to the Federal Reserve related to their European exposures in the form of two supplemental templates.²³

In addition, eight BHCs with substantial trading or custodial operations will be required to incorporate a counterparty default scenario component into their supervisory adverse and severely adverse stress scenarios.²⁴ Specifically, these eight BHCs are 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 SFTs) activity. Each BHC's largest counterparty should be determined by net stressed losses, which are computed by revaluing exposures and collateral using the set of hypothetical asset price shocks specified in the Federal Reserve's global market shock. The as-of date for the counterparty default scenario component will also be October 16, 2013. These BHCs will also be required to submit additional data in the form of a supplemental template and documentation to the Federal Reserve related to the counterparty default scenario component, including information regarding their SFT and derivative activities.

Table 2. Capital worksheet requirements

Scenario	Capital worksheet 1	Capital worksheet 2
BHC baseline	Planned capital actions	n.a.
Supervisory baseline*	Planned capital actions	DFA stress test capital actions
BHC stress	Alternative capital actions	n.a.
Supervisory adverse	Planned capital actions	DFA stress test capital actions
Supervisory severely adverse	Planned capital actions	DFA stress test capital actions

* If a BHC determines the supervisory baseline scenario to be appropriate for its own BHC baseline, the BHC may submit identical FR Y-14A Summary schedules with the exception of the capital worksheets noted above. All BHCs must complete two capital worksheets for the supervisory baseline and supervisory severely adverse scenario. Return to table.

n.a. Not applicable.

BHC Baseline and Stress Scenarios

A BHC's scenario design process should involve development of scenarios that affect the BHC as a whole, stemming from macroeconomic and financial market conditions, and should also include potential BHC-specific events. Assumptions should remain constant across business lines and risk areas for the chosen scenario, since the objective is to see how the BHC as a whole will be affected by a common and internally consistent scenario. A BHC should consider the best manner in which to capture combinations of stressful events and circumstances, including second-order and "knock-on" effects that may result from the specified economic and financial environment or any potential BHC-specific event.

The BHC baseline scenario should reflect the BHC's view of the expected path of the economy over the planning horizon. A BHC may use the same baseline scenario as the Federal Reserve baseline scenario if that BHC believes the Federal Reserve baseline scenario appropriately represents its view of the most likely outlook for the risk factors salient to the BHC.²⁵

The BHC stress scenario should be based on a coherent, logical narrative of a severely adverse economic and financial market environment and potential BHC-specific events. This scenario narrative should detail key events and circumstances that occur in the scenario. As required in the FR Y-14A Scenario schedule, the BHC must provide the quarterly trajectories of key macroeconomic and financial variables for its BHC baseline and BHC stress scenario.

A BHC's stress scenario should describe a severely adverse hypothetical combination of circumstances designed with the BHC's particular vulnerabilities in mind. Specifically, and as noted earlier, the BHC stress scenario should be designed to stress factors that affect all of the company's material exposures and activities, capturing potential exposures from both on- and off-balance sheet positions. In addition, the forward-looking analysis required in the BHC stress scenario should be relevant to the direction and strategy set by a BHC's board of directors.²⁶

Back to section top

References

• Other Formats

• Full report (PDF)

• Stay Connected

• Twitter
• YouTube
• Flickr
• RSS Feeds
• Subscribe