Comprehensive Capital Analysis and Review 2015:
Assessment Framework and Results, March 2015
One of the principal functions of the Federal Reserve is to regulate and supervise financial institutions, including bank holding companies (BHCs), savings and loan holding companies, state member banks, and systemically important nonbank financial institutions. Through its supervision, the Federal Reserve promotes a safe, sound, and stable banking and financial system that supports the growth and stability of the U.S. economy.1
To fulfill its supervisory objectives and to reorient its supervisory program in response to the lessons learned from the financial crisis, the Federal Reserve has created new frameworks and programs for the supervision of the largest and most complex financial institutions.
One of the key cross-firm programs is an annual assessment by the Federal Reserve of whether BHCs with $50 billion or more in total consolidated assets have effective capital planning processes and sufficient capital to absorb losses during stressful conditions, while meeting obligations to creditors and counterparties and continuing to serve as credit intermediaries. This annual assessment includes two related programs:
- The Comprehensive Capital Analysis and Review (CCAR) evaluates a BHC's capital adequacy, capital adequacy process, and its planned capital distributions, such as dividend payments and common stock repurchases. As part of CCAR, the Federal Reserve evaluates whether BHCs have sufficient capital to continue operations throughout times of economic and financial market stress and whether they have robust, forward-looking capital planning processes that account for their unique risks. The Federal Reserve may object to a BHC's capital plan based on either quantitative or qualitative grounds. If the Federal Reserve objects to a BHC's capital plan, the BHC may not make any capital distribution unless the Federal Reserve indicates in writing that it does not object to the distribution.
- Dodd-Frank Act supervisory stress testingis a forward-looking quantitative evaluation of the impact of stressful economic and financial market conditions on BHC capital. This program serves to inform the Federal Reserve, the financial companies, and the general public, how these institutions' capital ratios might change during a hypothetical set of adverse economic conditions as designed by the Federal Reserve. In addition to the annual supervisory stress test conducted by the Federal Reserve, each BHC is required to conduct annual company-run stress tests under the same three supervisory scenarios and conduct a mid-cycle stress test under company-developed scenarios.