Board of Governors of the Federal Reserve System

Quantitative Assessment Framework and Summary of Results

Assessment Framework

In the quantitative assessment, the Federal Reserve evaluated each firm's ability to maintain post-stress capital ratios above the applicable minimum regulatory capital ratios in effect during each quarter of the planning horizon under both expected and stressful conditions, after taking the capital actions described in the BHC baseline scenario of its capital plan.¹³ The CCAR quantitative assessment is based both on: (a) the results of the firm's internal stress tests and (b) post-stress capital ratios estimated by the Federal Reserve under the supervisory scenarios (CCAR supervisory post-stress capital analysis). The Federal Reserve may object to the capital plan of any firm that has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio throughout the planning horizon in the post-stress capital analysis.

The CCAR supervisory post-stress capital analysis is based on estimates of net income, total assets, and risk-weighted assets from the Federal Reserve's supervisory stress test conducted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).¹⁴ (For a comparison of the Dodd-Frank Act stress tests and CCAR, see box 2.) As described in the overview of the methodology of the Dodd-Frank Act supervisory stress tests published on June 22, 2017, for these projections, the Federal Reserve uses data provided by all firms in the CCAR quantitative assessment and a set of models developed or selected by the Federal Reserve.¹⁵

The supervisory projections are conducted under three hypothetical macroeconomic and financial market scenarios developed by the Federal Reserve: the baseline, adverse, and severely adverse supervisory stress scenarios.¹⁶ While the same supervisory scenarios applied to all firms, a subset of firms was also subject to additional components in the severely adverse and adverse scenarios: the global market shock and counterparty default scenario components.¹⁷ Firms were required to conduct stress tests using the same supervisory scenarios, at least one stress scenario developed by the firm (the BHC stress scenario), and a baseline scenario developed by the firm (BHC baseline scenario).¹⁸

As noted, the Federal Reserve incorporates a firm's planned capital actions under its baseline scenario, including any capital actions associated with business plan changes, in projecting the firm's post-stress capital ratios. Thus, the firms are assumed to maintain the level of dividends, share repurchases, and other capital distributions they in fact plan to execute over the planning horizon despite the hypothetical severe deterioration in the economic and financial environment. In an actual downturn, firms may reduce capital distributions under stressful conditions. However, the goal of the CCAR post-stress capital analysis is to provide a rigorous test of a firm's financial condition even if the economy deteriorated and the firm continued to make its planned capital distributions--as many companies continued to do well into the financial crisis.

The Federal Reserve provides each firm with a one-time opportunity to adjust its planned capital distributions after the firm receives the Federal Reserve's preliminary estimates of the firm's post-stress capital ratios. To undertake this adjustment, the Federal Reserve considered only reductions in capital distributions, including decreasing planned common stock dividends and/or reducing planned repurchases or redemptions of other regulatory capital instruments, relative to those initially submitted by a firm in its April 2017 capital plan. These adjusted capital actions, where applicable, were then incorporated into the Federal Reserve's projections to calculate adjusted post-stress capital levels and ratios. The Federal Reserve discloses post-stress results with a firm's original capital actions and any adjusted capital actions.

Summary of Quantitative Results

The Federal Reserve did not object to any firms' planned capital distributions on quantitative grounds.

Results of Quantitative Assessment

As noted above, no firm was objected to on quantitative grounds in CCAR 2017. Table 4 and 5 contain minimum post-stress common equity tier 1 ratios for each of the firms under the supervisory severely adverse and adverse scenarios. The middle column of the table incorporates the original planned capital distributions included in the capital plans submitted by the firms in April 2017. The ratios reported in the right-hand column incorporate any adjusted capital distributions submitted by a firm after receiving the Federal Reserve's preliminary CCAR post-stress capital analysis.

Table 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, where applicable. The ratios based on adjusted capital actions are only reported for those firms that submitted adjusted capital actions. The results in table 6.A are for firms subject to the advanced approaches, and the results in 6.B are for firms that are not subject to the advanced approaches.

In the supervisory severely adverse scenario, American Express Company was projected to have at least one minimum post-stress capital ratio lower than minimum required regulatory capital ratios based on its original planned capital actions. American Express Company fell below the minimum required total capital ratio post-stress. (See the applicable minimum capital ratios for advanced approaches firms provided in table 6.A and the applicable minimum capital ratios for other firms provided in table 6.B.) However, American Express was able to maintain its post-stress regulatory capital ratios above minimum requirements in the severely adverse scenario after submitting adjusted capital actions.

Table 7.A and 7.B report minimum capital ratios in the supervisory adverse scenario based on both the original and adjusted planned capital actions, where applicable. The minimum capital ratios were generally higher in the supervisory adverse scenario than in the supervisory severely adverse scenario.

Table 4. Projected minimum common equity tier 1 ratio in the severely adverse scenario, 2017:Q1 to 2019:Q1

Table 5. Projected minimum common equity tier 1 ratio in the adverse scenario, 2017:Q1 to 2019:Q1

Table 6.A. Projected minimum regulatory capital ratios in the severely adverse scenario, 2017:Q1 to 2019:Q1: Advanced approaches firms

Required minimum capital ratios in CCAR 2017 for advanced approaches firms (Percent)

Table 6.B. Projected minimum regulatory capital ratios in the severely adverse scenario, 2017:Q1 to 2019:Q1: Other firms

Required minimum capital ratios in CCAR 2017 for other firms (Percent)

Table 7.A. Projected minimum regulatory capital ratios in the adverse scenario, 2017:Q1 to 2019:Q1: Advanced approaches firms

Required minimum capital ratios in CCAR 2017 for advanced approaches firms (Percent)

Table 7.B. Projected minimum regulatory capital ratios in the adverse scenario, 2017:Q1 to 2019:Q1: Other firms

Required minimum capital ratios in CCAR 2017 for other firms (Percent)

 

References

 

 13. In CCAR 2017, firms subject to the advanced approaches risk-weighted assets calculations were required for the first time to meet the minimum supplementary leverage ratio requirement of 3 percent as part of the quantitative assessment. Return to text

 14. For more on the methodology of the Federal Reserve's supervisory stress test, see Board of Governors of the Federal Reserve System, Dodd-Frank Act Stress Test 2017: Supervisory Stress Test Methodology and Results (Washington: Board of Governors, June 2017), www.federalreserve.gov/newsevents/pressreleases/bcreg20170622a.htm. Return to text

 15. For CCAR 2017, in addition to the models developed and data collected by the Federal Reserve, the Federal Reserve used proprietary models and data licensed from certain third-party providers. These providers are identified in appendix B, "Models to Project Net Income and Stressed Capital" of Board of Governors of the Federal Reserve System, Dodd-Frank Act Stress Test 2017: Supervisory Stress Test Methodology and Results (Washington: Board of Governors, June 2017), www.federalreserve.gov/newsevents/pressreleases/bcreg20170622a.htm, (see page 61, footnote 43). Return to text

 16. Firms use these scenarios in conducting their company-run stress tests pursuant to the Board's rules implementing section 165(i)(2) of the Dodd-Frank Act (Dodd-Frank Act stress test rules). See 12 USC 5365(i)(2); 12 CFR part 252, subpart F. Return to text

 17. The six BHCs that were 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 252.54(b)(2). The eight BHCs that were 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 252.54(b)(2). See Board of Governors of the Federal Reserve System, 2017 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule (Washington: Board of Governors, February 3, 2017), www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170203a5.pdf. Return to text

 18. The Federal Reserve expects a firm that uses the supervisory baseline scenario as its BHC baseline scenario to explain why the supervisory baseline scenario is an appropriate representation of the firm's view of the most likely outlook for the risk factors salient to the firm. Return to text