Comprehensive Capital Analysis and Review (CCAR) is a United States regulatory framework introduced by the Federal Reserve in 2009[1] to assess, regulate, and supervise large banks and financial institutions – collectively referred to in the framework as bank holding companies (BHCs). It was an extension of the stress tests performed during the financial crisis of 2007–2008.

The assessment is conducted annually and comprises two related programs:

  1. Comprehensive Capital Analysis and Review
  2. Dodd–Frank Act supervisory stress testing

The core part of the program assesses whether:

  1. BHCs possess adequate capital.
  2. The capital structure is stable given various stress-test scenarios.
  3. Planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to regulatory minimum capital requirements.

The assessment is performed on both qualitative and quantitative bases. The Federal Reserve may order banks to suspend their planned capital distributions to shareholders until the target capital balance is restored.

Dodd–Frank Act supervisory stress testing

Dodd–Frank Act imposes forward-looking stress testing of a bank's capital structure on a quantitative basis. The annual stress-test scenarios are prescribed by the regulatory body, while the mid-cycle testing may be performed under discretionary scenarios.

The Federal Reserve publishes three scenarios which each BHC must model: baseline, adverse, and severely adverse. These scenarios contain numeric values of macroeconomic indicators describing potential global economic scenarios two years (nine quarters) into the future. According to the Federal Reserve, each scenario represents the following:[2]

The baseline scenario will reflect the most recently available consensus views of the macroeconomic outlook expressed by professional forecasters, government agencies, and other public-sector organizations as of the beginning of the annual stresstest cycle. The severely adverse scenario will consist of a set of economic and financial conditions that reflect the conditions of post-war U.S. recessions. The adverse scenario will consist of a set of economic and financial conditions that are more adverse than those associated with the baseline scenario but less severe than those associated with the severely adverse scenario.

The BHCs are also asked to design their own scenarios to ensure capital adequacy.[3][4]

The Federal Reserve publishes a summary of each year's results.[5]

See also

References

  1. ↑ "CCAR and Stress Testing as Complementary Supervisory Tools".
  2. ↑ "Policy Statement on the Scenario Design Framework for Stress Testing" (PDF). Board of Governors of the Federal Reserve System. January 1, 2014. p. 22. Archived from the original (PDF) on October 2, 2022. Retrieved December 6, 2022.
  3. ↑ "12 CFR § 225.8 - Capital planning". GoveInfo.gov. GovInfo. January 1, 2017 [October 27, 2014]. p. (e). Retrieved December 6, 2022.{{cite web}}: CS1 maint: date and year (link)
  4. ↑ "2022 Stress Test Scenarios" (PDF). Federal Reserve Board Publications. February 2022. Archived from the original (PDF) on April 24, 2022. Retrieved December 6, 2022.
  5. ↑ "The Fed - Comprehensive Capital Analysis and Review (CCAR) Publications". Board of Governors of the Federal Reserve System. Retrieved December 6, 2022.
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