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. 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 Act.¹⁰ (For a comparison of DFAST and CCAR, see box 2.) As described in the overview of the methodology of DFAST published on March 28, 2019, 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.¹¹

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 scenarios. While the same supervisory scenarios are applied to all firms, a subset of firms was also subject to two additional components in the severely adverse and adverse scenarios: the global market shock and the largest counterparty default (LCPD) component.¹² 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).¹³

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 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 supervisory 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 provided each firm with a one-time opportunity to adjust its planned capital distributions after it receives the Federal Reserve's preliminary estimates of the firm's post-stress capital ratios. To undertake this adjustment, the Federal Reserve considered 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 2019 capital plan. The Federal Reserve also considered increases in firms' planned issuances of common stock in the third quarter of the planning horizon in instances where a firm has reduced its planned capital distributions to zero in the second through ninth quarters of the planning horizon. 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' capital plan on quantitative grounds.

Results of Quantitative Assessment

As noted above, no firms were objected to on quantitative grounds in CCAR 2019. Tables 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 submitted by the firms in April 2019. 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 reports 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. In the supervisory severely adverse scenario, Capital One Financial Corporation (Capital One) and JPMorgan Chase & Co. (JPMorgan) were 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. Capital One fell below the minimum required common equity tier 1 ratio, tier 1 capital ratio, and total capital ratio on a post-stress basis. JPMorgan fell below the minimum required common equity tier 1 ratio, tier 1 leverage ratio, and the supplementary leverage ratio on a post-stress basis. (See the applicable minimum capital ratios for provided in table 6.) However, both Capital One and JPMorgan were able to maintain their post-stress regulatory capital ratios above minimum requirements in the severely adverse scenario after submitting adjusted capital actions.

Table 7 reports 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, 2019:Q1 to 2021:Q1

Table 5. Projected minimum common equity tier 1 ratio in the adverse scenario, 2019:Q1 to 2021:Q1

Table 6. Projected minimum regulatory capital ratios in the severely adverse scenario, 2019:Q1 to 2021:Q1: 18 Participating Firms

Required minimum capital ratios in CCAR 2019 (Percent)

Table 7. Projected minimum regulatory capital ratios in the adverse scenario, 2019:Q1 to 2021:Q1: 18 Participating Firms

Required minimum capital ratios in CCAR 2019 (Percent)

 

References

 

 10. 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 2019: Supervisory Stress Test Methodology(Washington: Board of Governors, March 2019), https://www.federalreserve.gov/publications/files/2019-march-supervisory-stress-test-methodology.pdf. Return to text

 11. For CCAR 2019, 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 Dodd-Frank Act Stress Test 2019: Supervisory Stress Test Methodology, https://www.federalreserve.gov/publications/files/2019-march-supervisory-stress-test-methodology.pdf, (see page 8, footnote 11). Return to text

 12. The 11 firms that were subject to the global market shock are Bank of America Corporation; Barclays US LLC; 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; UBS Americas Holdings LLC; and Wells Fargo & Company. See 12 CFR 252.54(b)(2).
The 13 firms subject to the LCPD component are Bank of America Corporation; The Bank of New York Mellon Corporation; Barclays US LLC; 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; State Street Corporation; UBS Americas Holding LLC; and Wells Fargo & Company. See 12 CFR 252.54(b)(2)(ii). Return to text

 13. 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 most likely outlook for the risk factors salient to the firm. Return to text