Executive Summary
The results of the 2019 CCAR exercise indicate that the financial system is strong and resilient. Large banks have more than doubled their capital levels since the financial crisis, in part because of supervisory programs like CCAR. (For more information on recent trends in capital levels, see box 1.) Capital is central to a firm's ability to absorb losses and continue operating and lending to creditworthy businesses and consumers. The largest firms have also made substantial progress in strengthening their capital planning practices.
Box 1: Overview of Trends in Capital Levels
Figure A provides the aggregate ratio of common equity capital to risk-weighted assets for the firms in CCAR from 2009 through the fourth quarter of 2018.1 This ratio has more than doubled from 4.9 percent in the first quarter of 2009 to 12.3 percent in the fourth quarter of 2018. That gain reflects a total increase of approximately $660 billion in common equity capital from the beginning of 2009 among these firms, bringing their total common equity capital to over $1.02 trillion in the fourth quarter of 2018.
Figure A. Aggregate common equity capital ratio of CCAR 2019 firms
Source: FR Y-9C.
In the aggregate, the 18 firms participating in CCAR 2019 have estimated that their common equity will remain near current levels between the third quarter of 2019 and the second quarter of 2020, based on their planned capital actions and net income projections under their baseline scenario.
These 18 firms hold about 70 percent of the total assets of all U.S. financial companies.2 The financial crisis revealed that both the level and quality of capital contribute to a firm's ability to continue operating under adverse conditions. In part through programs like CCAR, the quantity and quality of capital held by these firms has improved, increasing the resilience of the banking sector and strengthening the financial system more broadly.
1. The Federal Reserve's evaluation of a firm's common equity capital was initially measured using a tier 1 common capital ratio but now is evaluated using a common equity tier 1 capital ratio, which was introduced into the regulatory capital framework with the implementation of Basel III. From 2009 through 2013, tier 1 common was used to measure common equity capital for all firms. In 2014, both tier 1 common capital (for non-advanced approaches firms) and common equity tier 1 capital (for advanced approaches firms) were used. From 2015 to present, common equity tier 1 capital was used for all firms. Under both measures, firms have significantly increased their capital position since 2009. Not all of the 18 firms participating in CCAR 2019 reported data for all periods since 2009. Return to text
2. This figure uses information from all firms that file the FR Y-9C, including domestic BHCs, IHCs, savings and loan holding companies, and securities holding companies, to define U.S. financial companies. Return to text
Return to textQuantitative Assessment
In the supervisory post-stress capital assessment, the Federal Reserve estimates that the aggregate common equity tier 1 ratio for the 18 firms participating in CCAR 2019 would decline in the severely adverse scenario from 12.3 percent in the fourth quarter of 2018 (the starting point for the exercise) to 6.6 percent at its minimum point.2 This post-stress common equity tier 1 ratio is 1.7 percentage points higher than the firms' aggregate common equity tier 1 ratio in the first quarter of 2009. (See tables 1 and 2 for more on the aggregate post-stress capital ratios for the firms that participated in CCAR 2019.)
Qualitative Assessment
The Federal Reserve observes that, on balance, most of the 17 firms participating in the CCAR 2019 qualitative assessment have continued to strengthen their capital planning practices since last year, with many of those firms meeting supervisory expectations for capital planning.3 Certain firms that are newer to CCAR have additional work to undertake to have sound, established capital planning practices, and a limited number of firms that have been subject to the qualitative assessment for a number of years have certain weaknesses that limit their capital planning capabilities. For further information, see the Qualitative Assessment Framework, Process, and Summary of Results section.
Capital Plan Decisions
No firms were objected to on quantitative or qualitative grounds in CCAR 2019. The Board of Governors of the Federal Reserve System (Board) issued a conditional non-objection to Credit Suisse Holdings (USA), Inc.'s (Credit Suisse) capital plan and is requiring the firm to address weaknesses in its capital adequacy process by October 27, 2019. The Board's decision on each firm's capital plan is presented in table 3.
Background on CCAR
The 2007–09 financial crisis illustrated that confidence in the capitalization and overall financial strength of a financial institution can erode rapidly in the face of changes in current or expected economic and financial conditions. More importantly, the crisis revealed that sudden actual or expected erosions of capital can lead to loss of investor and counterparty confidence in the financial strength of a systemically important financial institution, which may not only imperil that institution's viability, but also harm the broader financial system. For this reason, the Federal Reserve has made assessments of capital planning and post stress analysis of capital adequacy a cornerstone of its supervision of the largest financial institutions.
The Federal Reserve's annual CCAR exercise is an intensive assessment of the capital adequacy and capital planning practices of large U.S. financial institutions. The quantitative assessment helps to ensure that firms maintain sufficient capital to continue operations throughout times of economic and financial market stress. The horizontal nature of the assessment offers insights into the condition of the U.S. financial system, including whether firms are sufficiently resilient to continue to lend to households and businesses under such adverse conditions. The CCAR process can also act as a counterweight to pressures that a firm may face to use capital distributions to signal financial strength, even when facing a deteriorating or highly stressful environment.
The qualitative assessment seeks to ensure that the largest firms have strong practices for assessing their capital needs that are supported by: effective firm-wide identification, measurement, and management of their material risks; strong internal controls; and effective oversight by senior management and boards of directors. By focusing on the key elements of capital planning, the qualitative assessment helps promote better risk management and greater resiliency at the firms. Each firm must support its capital planning decisions with a forward-looking, comprehensive analysis that takes into account the firm's unique risk profile and activities as well as the effect of highly stressful operating environments on its financial condition.
The results of the qualitative assessment are key inputs into other aspects of the Federal Reserve's supervisory program for the largest U.S. financial institutions and factor into annual supervisory assessments of each firm.
This report provides
- background on the CCAR requirements;
- descriptions of the assessment framework and summary of results for the quantitative assessment;
- descriptions of the assessment framework, process, historical deficiencies, and summary of results for the qualitative assessment; and,
- information about the process and requirements of CCAR 2019, including the consequences of an objection to a capital plan, the execution of planned capital distributions, the process for resubmitting a capital plan, and feedback provided by the Federal Reserve on a firm's capital plan.
Table 1. Projected minimum regulatory capital ratios under the severely adverse scenario, 2019:Q1 to 2021:Q1: 18 participating firms
Percent
| Regulatory ratio | Actual 2018:Q4 | Projected minimum stressed ratios | |
|---|---|---|---|
| Original planned capital actions | Adjusted planned capital actions | ||
| Common equity tier 1 capital ratio | 12.3 | 6.5 | 6.6 |
| Tier 1 capital ratio | 14.0 | 8.3 | 8.4 |
| Total capital ratio | 16.4 | 10.6 | 10.7 |
| Tier 1 leverage ratio | 8.6 | 5.1 | 5.1 |
| Supplementary leverage ratio | 6.9 | 4.0 | 4.1 |
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 April 2019 by the firms in their annual capital plans and the minimum ratios incorporating any adjustments to capital distributions made by a firm after reviewing the Federal Reserve's stress test. The minimum capital ratios are for the period 2019:Q1 to 2021:Q1. The minimum capital ratios do not necessarily occur in the same quarter. Supplementary leverage ratio projections only include estimates for firms subject to advanced approaches.
Source: Federal Reserve estimates in the severely adverse scenario.
Table 2. Projected minimum regulatory capital ratios under the adverse scenario, 2019:Q1 to 2021:Q1: 18 participating firms
Percent
| Regulatory ratio | Actual 2018:Q4 | Projected minimum stressed ratios | |
|---|---|---|---|
| Original planned capital actions | Adjusted planned capital actions | ||
| Common equity tier 1 capital ratio | 12.3 | 9.1 | 9.1 |
| Tier 1 capital ratio | 14.0 | 10.8 | 10.9 |
| Total capital ratio | 16.4 | 12.8 | 12.9 |
| Tier 1 leverage ratio | 8.6 | 6.7 | 6.7 |
| Supplementary leverage ratio | 6.9 | 5.3 | 5.4 |
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 April 2019 by the firms in their annual capital plans and the minimum ratios incorporating any adjustments to capital distributions made by a firm after reviewing the Federal Reserve's stress test. The minimum capital ratios are for the period 2019:Q1 to 2021:Q1. The minimum capital ratios do not necessarily occur in the same quarter. Supplementary leverage ratio projections only include estimates for firms subject to advanced approaches.
Source: Federal Reserve estimates in the adverse scenario.
Table 3. Summary of the Federal Reserve's actions on capital plans in CCAR 2019
| Non-objection to capital plan | Conditional non-objection to capital plan | Objection to capital plan |
|---|---|---|
| Bank of America Corporation | Credit Suisse Holdings (USA), Inc. | |
| The Bank of New York Mellon Corporation | ||
| Barclays US LLC | ||
| Capital One Financial Corporation | ||
| Citigroup Inc. | ||
| DB USA Corporation | ||
| The Goldman Sachs Group, Inc. | ||
| HSBC North America Holdings Inc. | ||
| JPMorgan Chase & Co. | ||
| Morgan Stanley | ||
| Northern Trust Corporation | ||
| The PNC Financial Services Group, Inc. | ||
| State Street Corporation | ||
| TD Group US Holdings LLC | ||
| U.S. Bancorp | ||
| UBS Americas Holding LLC | ||
| Wells Fargo & Company |
References
2. The 18 firms subject to CCAR's quantitative assessment in 2019 are: Bank of America Corporation; The Bank of New York Mellon Corporation; Barclays US LLC; Capital One Financial Corporation; Citigroup Inc.; Credit Suisse Holdings (USA), Inc.; DB USA Corporation; The Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; JPMorgan Chase & Co.; Morgan Stanley; Northern Trust Corporation; The PNC Financial Services Group, Inc.; State Street Corporation; TD Group US Holdings LLC; UBS Americas Holding LLC; U.S. Bancorp; and Wells Fargo & Company.
In addition, DWS USA Corporation, a second IHC subsidiary of Deutsche Bank AG with approximately $2 billion in total consolidated assets, was included in the quantitative assessment of CCAR 2019 and maintained capital above each regulatory minimum ratio on a post-stress basis. Return to text
3. The 17 firms subject to CCAR's qualitative assessment in 2019 include all of those noted in footnote 2, other than Northern Trust Corporation. The firm's capital planning practices are assessed through the Federal Reserve's Horizontal Capital Review. Return to text