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Comprehensive Capital Analysis and Review 2016: Assessment Framework and Results

Process and Requirements after CCAR 2016

Execution of Capital Plan and Consequences of a Federal Reserve Objection to a Plan

The Federal Reserve evaluates planned capital actions for the full nine-quarter planning horizon to better understand each BHC's longer-term capital management strategy and to assess post-stress capital levels over the full planning horizon.27 While the nine-quarter planning horizon reflected in the 2016 capital plans extends through the beginning of 2018, the Federal Reserve's decision to object or not object to BHCs' planned capital actions is carried out annually and applies only to the four quarters following the disclosure of results. Therefore, the Federal Reserve's decisions with regard to planned capital distributions in CCAR 2016 will apply from the beginning of the third quarter of 2016 through the end of the second quarter of 2017.28

When the Federal Reserve objects to a BHC's capital plan, the BHC may not make any capital distribution unless expressly permitted by the Federal Reserve.29 For those BHCs that did not receive an objection to their capital plans, the capital plan rule provides that a BHC generally 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 (gross distribution limit).30

In addition, a BHC generally must request the Board's non-objection for capital distributions included in the BHC's capital plan if the BHC has issued less capital of a given class of regulatory capital instrument (net of distributions) than the BHC had included in its capital plan, measured cumulatively, beginning with the third quarter of the planning horizon (the third quarter of 2016).31 For example, a BHC that planned to issue common stock in the fourth quarter of 2016, but issued less stock than included in its capital plan, would be prohibited from making planned common dividends, share repurchases, or both in that quarter and subsequent quarters unless and until it offsets the excess net distributions. A BHC's consistent failure to issue less regulatory capital than included in its plan may be indicative of shortcomings in the BHC's capital planning process and may negatively influence the Federal Reserve's assessment of the BHC's capital plans in future years.

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If a BHC received an objection to its capital plan, it may choose to resubmit its plan in advance of the next CCAR exercise, but it is not required to do so.32 The Federal Reserve may require a BHC to resubmit its capital plan in future quarters for a number of reasons, including if there has been or will likely be a material change in the BHC's risk profile, financial condition, or corporate structure; the BHC's stress scenarios are no longer appropriate for the BHC's business models or portfolios; or changes in the macroeconomic outlook that could materially affect the BHC's risk profile and financial condition require the use of updated scenarios.33 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.34

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Feedback Letters

Following the conclusion of CCAR, each of the participating BHCs will receive a detailed assessment of its capital plan and the full range of practices supporting its capital planning process, including feedback on areas where the plans and processes need to be strengthened. This feedback will be based on assessments of all major elements of the 2016 capital plans. These assessments will provide detailed discussions of how each BHC is progressing in efforts to meet the Federal Reserve's supervisory expectations for capital planning and will clarify specific areas that each BHC must address in order to strengthen their capital planning processes.

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27. See Board of Governors of the Federal Reserve System, "Comprehensive Capital Analysis and Review 2016 Summary Instructions" (Washington: Board of Governors, January 2016), to text

28. The capital distributions for the three "out quarters" (the third and fourth quarters of 2017 and the first quarter of 2018) in CCAR 2016 will be addressed in CCAR 2017. Return to text

29. See 12 CFR 225.8(f)(2)(iv). Return to text

30. A BHC is not required to provide prior notice and seek approval for distributions involving issuances of instruments that would qualify for inclusion in the numerator of regulatory capital ratios that were not included in the BHC's capital plan. See 12 CFR 225.8(g)(2)(iii)(B). Return to text

31. The classes of regulatory capital instruments are common equity tier 1, additional tier 1, and tier 2 capital instruments, as defined in 12 CFR 217.2. BHCs are not required to provide prior notice and seek approval for distributions included in their capital plans that are scheduled payments on additional tier 1 or tier 2 capital. In addition, BHCs are not required to provide prior notice and seek approval where the shortfall in capital issuance (net of distributions) is due to employee-directed capital issuances related to an employee stock ownership plan, a planned merger or acquisition that is no longer expected to be consummated or for which the consideration paid was lower than the projected price in the capital plan, or if aggregate excess net distributions are less than 1 percent of the BHC's tier 1 capital. See 12 CFR 225.8(g)(3)(iii). Return to text

32. See 12 CFR 225.8(e)(4)(ii). Return to text

33. See 12 CFR 225.8(e)(4)(i)(B). Return to text

34. See 12 CFR 225.8(e)(4)(i)(A). Return to text

Last update: July 26, 2016

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