Comprehensive Capital Analysis and Review 2014: Summary Instructions and Guidance
- Supervisory Stress Testing and Capital Plan Assessments
- Federal Reserve Responses to Planned Capital Actions
- Appendix A: Templates for Dodd-Frank Act Stress Testing Results 2014
Federal Reserve Responses to Planned Capital Actions
After performing appropriate analysis, the Federal Reserve will, by March 31, either object or provide a notice of non-objection to the submitted capital plan based on assessments of the comprehensiveness and quality of the plan; pro forma, post-stress capital ratios under the scenarios; and transition plan under the revised regulatory capital framework. The Federal Reserve could object in whole or in part to the proposed capital actions in the plans. The supervisory assessment will be conducted across the entire nine-quarter planning horizon; however, the object or non-object decision applies specifically to capital actions during the four quarters beginning with the second quarter of the following calendar year. For CCAR 2014, this will apply to the capital actions from the second quarter of 2014 through the first quarter of 2015.
Submissions that are late, incomplete, or otherwise unclear could result in an objection to the plan and a mandatory resubmission of a new plan, which may not be reviewed until the following quarter. Upon the Federal Reserve's objection to a capital plan, the BHC may not make any capital distribution other than those capital distributions with respect to which the Federal Reserve has indicated in writing its non-objection.50
Based on a review of a BHC's capital plan, supporting information, and data submissions, the Federal Reserve may require additional supporting information or analysis from a BHC, or require it to revise and resubmit its plan. Any of these may also result in the delay of evaluation of capital actions until a subsequent calendar quarter.
It is important to note that the CAP described in the capital plan rule is broadly equivalent to an internal capital adequacy assessment process (ICAAP) under the Federal Reserve's advanced approaches capital guidelines.51 Accordingly, the seven principles articulated in the Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice document are consistent with the U.S. federal banking agencies' supervisory guidance relating to the ICAAP under the advanced approaches guidelines. If the Federal Reserve identifies substantial weaknesses in a BHC's CAP, that finding on its own could justify an objection to a BHC's capital plan. However, a non-objection to a BHC's capital plan does not necessarily mean that a BHC is considered to have a fully satisfactory CAP.
Limited Adjustments to Planned Capital Actions
Upon completion of the quantitative and qualitative assessments of BHCs' capital plans, but before the disclosure of the final CCAR results, the Federal Reserve will provide each BHC with the results of the post-stress capital analysis for its BHC, and each BHC will have an opportunity to make a one-time adjustment to planned capital distributions. The only adjustment that will be considered is a reduction from the initially planned capital distributions. The Federal Reserve's final decision to object or not object will be informed by the adjusted capital distribution plans.
Disclosure of Supervisory Stress Test Results
At the end of the CCAR process, the Federal Reserve intends to publish results based on its DFA supervisory stress tests under both the supervisory adverse and severely adverse scenarios. The Federal Reserve will provide the detailed results of supervisory stress tests for each BHC, including stressed losses and revenues, and the post-stress capital ratios based on the capital action assumptions required under the DFA stress test rules, along with an overview of methodologies used for supervisory stress tests. (See appendix A for the format that will be used to publish these data.)
In its disclosure of the CCAR results, the Federal Reserve will also publish the BHC-specific post-stress pro forma regulatory capital ratios (leverage, common equity tier 1 risk-based, tier 1 risk-based, and total risk-based capital ratios) and the tier 1 common ratio estimated in the adverse and severely adverse scenarios. These results will be derived using the planned capital actions as provided under the BHC baseline scenario. The disclosed information will include minimum values of these ratios over the planning horizon, using the originally submitted planned capital actions under the baseline scenario and any adjusted capital distributions in the final capital plans, where applicable. (See appendix B for the format that will be used to publish these data.)
Both sets of results, with the overview of methodologies and other information related to supervisory stress tests and CCAR, are expected to be published by March 31, 2014.
If a BHC receives an objection to its capital plan, it must resubmit its plan within 30 days or such longer period as the Federal Reserve determines appropriate. The Federal Reserve at all times retains the ability to ultimately object to capital distributions in future quarters if a BHC exhibits a material decline in performance or financial condition, or if a deteriorating outlook materially increases BHC-specific risks.
As detailed in the capital plan rule, a BHC must update and resubmit its capital plan if it determines there has been or will be a material change in the BHC's risk profile (including a material change in its business strategy or any material risk exposures), financial condition, or corporate structure since the BHC adopted the capital plan. Further, the Federal Reserve may direct a BHC to revise and resubmit its capital plan for a number of reasons, including if a stress scenario developed by a BHC is not appropriate to its business model and portfolios or if changes in financial markets or the macroeconomic outlook that could have a material impact on a BHC's risk profile and financial condition requires the use of updated scenarios.
The capital plan rule provides that a BHC must request prior approval of a capital distribution if the "dollar amount of the capital distribution will exceed the amount described in the capital plan for which a non-objection was issued" unless an exception (i.e., less than 1 percent of tier 1 capital) is met.52 In particular, a BHC should notify the Federal Reserve as early as possible before issuing or redeeming any capital instrument that counts as regulatory capital and that was not included in its capital plan. Any capital distribution associated with the issuance that was not identified in the capital plan is subject to the requirements of section 225.8(f) of the capital plan rule (12 CFR 225.8(f)). The Federal Reserve will examine performance relative to the initial projections and the rationale for the request. Any such request for prior approval should incorporate a fully updated capital plan, including relevant FR Y-14 schedules reflecting updated baseline and supervisory stress scenarios provided by the Federal Reserve, unless otherwise directed by the Federal Reserve.
Correspondence Related to CCAR
All correspondence and questions regarding this exercise and related issues should be communicated to a secure mailbox, the address to which will be provided directly to the BHCs participating in CCAR 2014. Questions will be catalogued and, where appropriate, written responses (removing any BHC identifying information) will be provided to all BHCs via secure e-mail. Any BHC-specific questions submitted to the secure mailbox will be addressed only with the relevant BHC via the same secure mailbox. If needed, meetings may be scheduled to discuss submitted questions in more detail; however, only those responses that come through the secure mailbox will be considered official.