Comprehensive Capital Analysis and Review 2015: Summary Instructions and Guidance
- Supervisory Expectations for a Capital Adequacy Process
- Federal Reserve Assessment of BHC Capital Plans
- Appendix A: Common Themes from CCAR 2014
The Federal Reserve's annual Comprehensive Capital Analysis and Review (CCAR) is an intensive assessment of the capital adequacy of large, complex U.S. bank holding companies (BHCs) and of the practices these BHCs use to assess their capital needs. The Federal Reserve expects these BHCs to have sufficient capital to withstand a highly stressful operating environment and be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries.
About This Publication
These instructions set forth guidance and expectations for the stress testing and capital planning cycle that begins on October 1, 2014, and the related CCAR exercise (CCAR 2015). Similar to the instructions in previous years, the instructions for CCAR 2015 provide information regarding the
- logistics for a BHC's capital plan submissions;
- expectations regarding the mandatory elements of a capital plan;
- qualitative assessment of a BHC's capital plan;
- quantitative assessment of a BHC's post-stress capital adequacy;
- response to capital plans and planned actions;
- limited adjustments a BHC may make to its planned capital distributions;
- planned supervisory disclosures at the end of the CCAR exercise; and
- common themes from CCAR 2014.
New Elements in CCAR 2015
The CCAR 2015 instructions include some new elements to enhance the CCAR program, mainly in order to provide further guidance on supervisory expectations around BHCs' capital adequacy process and capital plan submissions. Specifically, they include:
- Supervisory expectations for reviews of BHCs'
regulatory reporting: A BHC is expected to have a strong internal control framework that helps govern its internal capital planning processes, including stress testing performed under the CCAR program, and that framework should include comprehensive documentation of the BHC's policies and procedures. To ensure that the BHC's processes are sufficiently robust, the Federal Reserve has requested each BHC make documentation available through the supervisory process that outlines the BHC's procedures used to ensure the accuracy of the regulatory reports affecting CCAR, including the FR Y-9C and FR Y-14. This documentation should include any identified weaknesses in the BHC's internal controls around regulatory reporting and any plans to enhance the control structure around regulatory reporting. (See "Data Supporting a Capital Plan Submission".)
- Organization of the capital plan submission: The instructions provide examples of formats that BHCs may use to organize their capital plan submission to help ensure that the submission contains all required information and to facilitate review by the Federal Reserve. (See "Organizing Capital Plan Submissions" and "Description of All Capital Actions Assumed over the Planning Horizon".)
- Model inventory and risk-identification program documentation: Pursuant to the recent revisions to the capital plan rule (capital plan rule amendment), 1 BHCs must provide a comprehensive inventory of the models used in their capital plan projections. The instructions clarify that the list of models should be organized around the FR Y-14A line items. In addition, a BHC is expected to
provide documentation outlining the risk-identification process the BHC uses to support the BHC-wide stress testing required in the capital plans. (See "Supporting Documentation for Analyses Used in Capital Plans".)
- Incorporation of amendments to the capital plan and stress test rules: The instructions provide additional details about how BHCs should implement the capital plan rule amendment, including (1) information on the transition to the new timeline for submitting capital plans beginning in CCAR 2016 (see "Federal Reserve Responses to Planned Capital Actions"); (2) clarification of how BHCs that are subsidiaries of foreign banking organizations should incorporate compliance with the intermediate holding company rule 2 into their capital plan projections (see "Expected Changes to Business Plans Affecting Capital Adequacy or Funding"); (3) discussion of the evaluation of planned capital actions in the "out-quarters" of the planning horizon--projected 2016:Q3 and 2016:Q4 in CCAR 2015 (see "Description of All Capital Actions Assumed over the Planning Horizon"); and (4) the requirement that BHCs do not exceed the capital distributions included in their capital plans on a gross or net basis (see "Execution of Capital Plan and Requests for Additional Distributions").
Overview of CCAR Process
In November 2011, the Board of Governors of the Federal Reserve System (Board) adopted the capital plan rule, which requires BHCs with consolidated assets of $50 billion or more to submit annual capital plans to the Federal Reserve for review.3 Under the rule, a BHC's capital plan must include detailed descriptions of the BHC's internal processes for assessing capital adequacy; the policies governing capital actions; and the BHC's planned capital actions over a nine-quarter planning horizon. Further, a BHC must also report to the Federal Reserve the results of stress tests conducted by the BHC under scenarios provided by the Federal Reserve and under a stress scenario designed by the BHC (BHC stress scenario). These stress tests assess the sources and uses of capital under baseline and stressed economic and financial market conditions.
Before a BHC submits its capital plan to the Federal Reserve, the capital plan must be approved by the BHC's board of directors, or a committee thereof.4 For CCAR 2015, capital plans should be submitted to the Federal Reserve by no later than January 5, 2015.5
Under the capital plan rule, the Federal Reserve assesses the overall financial condition, risk profile, and capital adequacy on a forward-looking basis and also assesses the strength of the BHC's capital adequacy process, including its capital policy (qualitative assessment).6 In particular, the Federal Reserve seeks to ensure that large BHCs have thorough and robust processes for managing their capital resources, and that the processes are supported by effective firm-wide risk-identification, risk-measurement, and risk-management practices. The Federal Reserve expects that a BHC's capital planning adequately accounts for the potential for stressful outcomes and is supported by strong internal control practices and close and effective oversight by the board of directors and senior management.
The Federal Reserve's quantitative assessment of capital plans is based on supervisory and company-run stress tests, conducted in part under the Board's rules implementing sections 165(i)(1) and (2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act stress test rules). (See "Stress Tests Conducted by BHCs" and "Supervisory Post-Stress Capital Analysis".) The supervisory review of a BHC's capital plan includes an assessment of the BHC's ability to maintain capital levels above each minimum regulatory capital ratio and above a tier 1 common ratio of 5 percent, after making all capital actions included in their capital plans, under baseline and stressful conditions throughout the nine-quarter planning horizon. See table 1 for a list of the ratios that are applicable to all BHCs participating in CCAR over the planning horizon.
Both quantitative and qualitative supervisory assessments are key inputs to the Federal Reserve's decision to object or not object to a BHC's capital plan. The decisions for all 31 BHCs participating in CCAR 2015, including the reasons for any objections to BHC capital plans will be published on or before March 31, 2015. In addition, the Federal Reserve will separately publish the results of its supervisory stress test under both the supervisory severely adverse and adverse scenarios.
|Regulatory ratio||Minimum ratio|
|Advanced approaches BHCs|
|Tier 1 common ratio||5 percent||5 percent|
|Common equity tier 1 capital ratio||4 percent||4.5 percent|
|Tier 1 risk-based capital ratio||5.5 percent||6 percent|
|Total risk-based capital ratio||8 percent||8 percent|
|Tier 1 leverage ratio||4 percent||4 percent|
|Tier 1 common ratio||5 percent||5 percent|
|Common equity tier 1 capital ratio||n.a.||4.5 percent|
|Tier 1 risk-based capital ratio||4 percent||6 percent|
|Total risk-based capital ratio||8 percent||8 percent|
|Tier 1 leverage ratio||3 or 4 percent||4 percent|
Note: The tier 1 common ratio is to be calculated for each planning horizon quarter using the definition of tier 1 capital and total risk-weighted assets in 12 CFR 225, appendix A. All other ratios are to be calculated using the definitions of tier 1 capital and approaches to risk-weighting assets that are in effect during a particular planning horizon quarter. See 79 Fed. Reg. 13498 (March 11, 2014).
For purposes of CCAR 2015, an advanced approaches BHC includes any BHC that has consolidated assets greater than or equal to $250 billion or total consolidated on-balance sheet foreign exposure of at least $10 billion as of December 31, 2013. See 12 CFR 217.100(b)(1); 12 CFR part 225, appendix G, section 1(b). Other BHCs include any BHC that is subject to 12 CFR 225.8 and is not an advanced approaches BHC.
n.a. Not applicable.
Correspondence Related to CCAR
All questions from BHCs and communications from the Federal Reserve concerning CCAR are handled through the secure CCAR Communications mailbox. BHCs will receive program updates via e-mail from the CCAR Communications mailbox. These updates include notifications about CCAR industry conference calls hosted by the Federal Reserve and responses to frequently asked questions (FAQ) submitted by participating BHCs about the CCAR process and instructions.
The CCAR Communications mailbox serves as a BHC's primary point of contact for specific questions about the capital plan and stress test rule requirements. If a BHC seeks clarifications on CCAR and Dodd-Frank Act stress test program elements, the BHC should submit its questions to the mailbox. All questions and responses, other than BHC-specific questions, will be made available to all CCAR BHCs through an FAQ document on a regular basis. BHC-specific questions will receive a direct response. 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.
1. See Board of Governors of the Federal Reserve System (2014), "Amendments to the Capital Plan and Stress Test Rules," press release, October 17, www.federalreserve.gov/newsevents/press/bcreg/20141017a.htm. Return to text
2. See 12 CFR 252, subpart O. Return to text
3. The capital plan rule is codified at 12 CFR 225.8. Asset size is measured over the previous four calendar quarters as reported on the FR Y-9C regulatory report. If a BHC has not filed the FR Y-9C for each of the four most-recent consecutive quarters, "average total consolidated assets" means the average of the company's total consolidated assets, as reported on the company's FR Y-9C, for the most recent quarter or consecutive quarters. Return to text
4. The BHCs required to participate in CCAR 2015 are Ally Financial Inc.; American Express Company; Bank of America Corporation; The Bank of New York Mellon Corporation; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; Capital One Financial Corporation; Citigroup Inc.; Comerica Incorporated; Deutsche Bank Trust Corporation; Discover Financial Services; Fifth Third Bancorp.; The Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; Huntington Bancshares Incorporated; JPMorgan Chase & Co.; KeyCorp; M&T Bank Corporation; Morgan Stanley; MUFG Americas Holdings Corporation; Northern Trust Corporation; The PNC Financial Services Group, Inc.; RBS Citizens Financial Group, Inc.; Regions Financial Corporation; Santander Holdings USA, Inc.; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp.; Wells Fargo & Co.; and Zions Bancorporation. CCAR 2015 is the first CCAR exercise for Deutsche Bank Trust Corporation. Return to text
5. A BHC that meets the threshold must submit a capital plan, even if it does not intend to undertake any capital distributions over the planning horizon. Return to text
6. See 12 CFR 225.8(e)(1)(i). Return to text