Featured Product

    FED Releases Scenarios for the CCAR and DFAST Exercises in 2019

    February 05, 2019

    FED released the scenarios that banks and supervisors will use for the 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test (DFAST) exercises. Banks are required to submit their capital plans and the results of their own stress tests to FED by April 05, 2019. FED will announce the results of its supervisory stress tests by June 30, 2019. The instructions for the 2019 CCAR will be released at a later date.

    FED also announced that it will provide relief to less-complex firms from stress testing requirements and from CCAR by effectively moving the firms to an extended stress test cycle for this year. The relief applies to firms generally with total consolidated assets between USD 100 billion and USD 250 billion. As a result, these less-complex firms will not be subject to a supervisory stress test during the 2019 cycle and their capital distributions for this year will be largely based on the results from the 2018 supervisory stress test. At a later date, FED will propose for notice and comment a final capital distribution method for firms on an extended stress test cycle in future years.

    The stress tests run by the firms and the FED apply three hypothetical scenarios: baseline, adverse, and severely adverse. For the 2019 cycle, the severely adverse scenario features a severe global recession in which the U.S. unemployment rate rises by more than 6 percentage points to 10%. In keeping with the FED's public framework for scenario design, a stronger economy with a lower starting point for the unemployment rate results in a tougher scenario. The severely adverse scenario also includes elevated stress in corporate loan and commercial real estate markets. The adverse and severely adverse scenarios describe hypothetical sets of events designed to assess the strength of banking organizations and their resilience. They are not forecasts. The baseline scenario is in line with average projections from surveys of economic forecasters. It does not represent the forecast of the FED. The adverse scenario features a moderate recession in the United States as well as weakening economic activity across all countries included in the scenario.

    Each scenario includes 28 variables—such as gross domestic product, the unemployment rate, stock market prices, and interest rates—covering domestic and international economic activity. Along with the variables, FED is publishing a narrative description of the scenarios that also highlights changes from last year. Firms with large trading operations will be required to factor in a global market shock component as part of their scenarios. Additionally, firms with substantial trading or processing operations will be required to incorporate a counterparty default scenario component. 

    CCAR evaluates the capital planning processes and capital adequacy of the largest U.S. bank holding companies, and large U.S. operations of foreign firms, using their planned capital distributions, such as dividend payments and share buybacks and issuance. The Dodd-Frank Act stress tests also help ensure that banks can continue to lend during times of stress, but use standard capital distribution assumptions for all firms. Both assessments only apply to domestic bank holding companies and foreign bank intermediate holding companies with more than USD 100 billion in total consolidated assets.

     

    Related Links

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

    Featured Experts
    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153