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February 01, 2018

FED released the scenarios that banks and supervisors will use for the 2018 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises. FED also issued instructions to the firms participating in CCAR. Firms participating in CCAR are required to submit their capital plans and stress testing results to the FED on or before April 05, 2018. FED will announce the results of its supervisory stress tests by June 30, 2018, with the exact date to be announced later.

In 2018, 18 of the largest and most complex firms will be subject to both a quantitative evaluation of their capital adequacy and a qualitative evaluation of their capital planning capabilities. Additionally, 20 firms will only be subject to the quantitative portion of CCAR. The six foreign firms that are new to CCAR this year are Barclays US LLC, BNP Paribas USA, Inc., Credit Suisse Holdings (USA), DB USA Corporation, RBC USA Holdco Corporation, and UBS Americas Holdings LLC. To support the transition to stress testing for foreign firms that are new to the evaluation, the U.S. operations of these six foreign firms with significant trading activity will be subject to a simplified global market shock this year and the complete global market shock next year.

The stress tests run by the firms and the Board apply three scenarios: baseline, adverse, and severely adverse. For the 2018 cycle, the severely adverse scenario is characterized by a severe global recession in which the U.S. unemployment rate rises almost 6 percentage points to 10%, accompanied by a steepening Treasury yield curve. The adverse scenario features a moderate recession in the United States, in addition to weakening economic activity across all countries included in the scenario. As in prior years, six bank holding companies with large trading operations will be required to factor in a global market shock as part of their scenarios. Eight firms with substantial trading or processing operations will also be required to incorporate a counterparty default scenario.

 

Related Link: Press Release and Related Documents

Keywords: Americas, US, Banking, Stress Testing, CCAR, DFAST, FED

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