skip to main navigation skip to secondary navigation skip to content
Board of Governors of the Federal Reserve System
skip to content

Comprehensive Capital Analysis and Review 2013: Assessment Framework
and Results

Capital Plan Assessment Factors

The Federal Reserve's review of the CCAR 2013 capital plans considered a wide range of factors, some of which were quantitative in nature and others of which were qualitative.

Assessing Quantitative Factors

In CCAR, each BHC is required in its capital plan to demonstrate that it can maintain capital ratios above minimum regulatory requirements and a tier 1 common ratio greater than 5 percent under stressed economic and financial market conditions.12 The Federal Reserve's assessment of this requirement is based on post-stress capital analysis generated by the BHCs, as well as on supervisory post-stress capital analysis.

In their capital plans, the BHCs were required to specify by quarter all planned capital actions, including dividend payments, common share repurchases, conversions, and issuance, as well as expected changes in the BHC's risk profile, business strategy, or corporate structure over the planning horizon. Plans with dividend payouts greater than 30 percent of net income under the baseline scenario received particularly close scrutiny.

The CCAR post-stress capital analysis measures the resiliency of each firm's current capital and assumed path of capital actions to potential changes in the economic and financial market environment. Thus, the analysis evaluates a BHC's nine-quarter, post-stress capital ratio using the Federal Reserve's severely adverse scenario, combined with the path of capital distributions assumed by the firm under its BHC baseline scenario and included in its capital plan. In reality, BHCs would be expected to reduce distributions, especially share repurchases, under adverse conditions. However, the goal was to provide a rigorous test of a BHC's health even if the economy deteriorated and the BHC continued to make capital distributions.

Table 4. Minimum regulatory ratios and tier 1 common ratio

Ratio Minimum*
Tier 1 common ratio 5 percent
Tier 1 leverage ratio 3 or 4 percent
Tier 1 risk-based capital ratio 4 percent
Total risk-based capital ratio 8 percent

* The minimum ratios for BHCs are 4 percent for the tier 1 capital ratio, 8 percent for the total capital ratio, and 3 or 4 percent for the tier 1 leverage ratio (3 percent only for a BHC with a composite supervisory rating of "1" or that is subject to the Federal Reserve Board's market-risk rule [12 CFR part 225, appendix E]). Ally Financial Inc., American Express Company, and Capital One Financial Corporation are not subject to the market risk rule (12 CFR part 225, appendix E). All other BHCs that participated in CCAR 2013 are subject to the market risk rule, and accordingly, their minimum leverage ratio is 3 percent. The capital plan rule stipulates that a BHC must demonstrate the ability to maintain a tier 1 common ratio above 5 percent. Return to table

In the CCAR capital analysis, post-stress capital positions are projected based on the same estimates of revenues and losses as the Federal Reserve's supervisory stress test conducted under DFAST.13 However, the analysis incorporates the planned capital actions described in each BHC's capital plan rather than the capital action assumptions required under the Board's DFAST rules.14 As in prior years, in CCAR 2013 the Federal Reserve also assessed each BHC's plans for meeting the proposed Basel III capital requirements, as they would come in effect in the United States. The Federal Reserve's analysis suggests that all 18 BHCs are on a path to successfully meet the Basel III requirements.

As described in the overview of methodology for DFAST published on March 7, 2013, supervisory stress tests project revenue and losses over the nine-quarter planning horizon, using input data provided by the 18 BHCs and a set of models developed or selected by the Federal Reserve, 15 based on a hypothetical, severely adverse macroeconomic and financial market scenario developed by the Federal Reserve. The severely adverse scenario features a deep recession in the United States, Europe, and Japan, significant declines in asset prices and increases in risk premia, and a marked economic slowdown in developing Asia. The Federal Reserve also applied a separate global market shock to six BHCs with large trading, private equity, and counterparty exposures from derivatives and financing transactions.16

Each BHC's own stress test analysis was to encompass all potential losses and other impacts to net income that the BHC might experience under each of the three supervisory scenarios, as well as under baseline and stress scenarios developed by the firm.

The Federal Reserve may object to the capital plan of any BHC that does not meet minimum capital ratios. Both the BHC's internal stress test results and the Federal Reserve's CCAR post-stress capital analysis are critical parts of the Federal Reserve's determination whether to object or not object to a capital plan; however, they are not the only consideration and not in all cases the most important consideration in this determination. For example, a BHC could have stressed capital ratios that remain well above regulatory minimum levels, and the Federal Reserve could still object to its capital plan based on qualitative factors and, thus, to the planned capital distributions in the plan.

For some BHCs, the Federal Reserve may require, as a condition of its non-objection to a capital plan, that the BHCs remediate certain weaknesses in their capital plans and capital planning processes identified during CCAR 2013, and resubmit their capital plans.


Assessing Qualitative Factors

Qualitative assessments are a critical component of the CCAR review. Even if a BHC meets required capital ratios, the Federal Reserve could nonetheless object to that BHC's capital plan for other reasons. As described in the Board's capital plan rule, these reasons include the following:

  • The BHC's capital adequacy assessment process, including the corporate governance and controls around the process, as well as risk-measurement and -management practices supporting the process, are not sufficiently robust.
  • The assumptions and analyses underlying the BHC's capital plan are inadequate.
  • A BHC's capital adequacy process or proposed capital distributions would constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board.
  • There are outstanding material, unresolved supervisory issues.17

The Federal Reserve's qualitative assessment of the capital plans focused on the robustness of a BHC's internal capital adequacy processes, including each BHC's stress test under its own internally designed stress scenario. Particular attention was given to the processes surrounding the development and implementation of the BHC stress scenario to ensure that these processes are robust and captured firm-specific vulnerabilities and risks, and that the translation of the scenario into loss, revenue, and capital projections was sound in both concept and implementation. There was also an assessment of whether the broader capital planning process has clear governance and is conducted in a well-controlled manner.



12. Tier 1 capital, as defined in the Federal Reserve's Risk-Based Capital Adequacy Guidelines, is composed of common and non-common equity elements, some of which are subject to limits on their inclusion in tier 1 capital. See 12 CFR part 225, appendix A, section II.A.1. These elements include common stockholders' equity, qualifying perpetual preferred stock, certain minority interests, and trust preferred securities. Certain intangible assets, including goodwill and deferred tax assets, are deducted from tier 1 capital or are included subject to limits. See 12 CFR part 225, appendix A, section II.B. Tier 1 common capital means tier 1 capital less the non-common elements of tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities, and mandatory convertible securities. 12 CFR 225.8(c)(8). Total regulatory capital consists of tier 1 capital plus certain subordinated debt instruments and the allowance for loan and lease losses, subject to certain limits. See 12 CFR part 225, appendix A, section II.A.2.  Return to text

13. See Board of Governors, "Dodd-Frank Act Stress Tests 2013."  Return to text

14. 12 CFR 252.146(b).  Return to text

15. In connection with CCAR 2013, and in addition to the models developed and data collected by the Federal Reserve, the Federal Reserve used proprietary models or data licensed from certain third-party providers. These providers are identified in Board of Governors of the Federal Reserve Board (2013), "Dodd-Frank Act Stress Tests 2013: Supervisory Stress Test Methodology and Results," report (Washington: Board of Governors, March 7), (see page 37, footnote 27).  Return to text

16. The six BHCs subject to the global market shock are Bank of America Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; and Wells Fargo & Company. See 12 CFR 252.134(b); see also 12 CFR 252.144(b)(2)(i).  Return to text

17. See 12 CFR 225.8(e)(2)(ii). In determining whether a capital plan or any proposed capital distribution would constitute an unsafe or unsound practice, the Board or the appropriate Reserve Bank would consider whether the BHC is and would remain in sound financial condition after giving effect to the capital plan and all proposed capital distributions. 12 CFR 225.8(e)(2)(ii)(D).  Return to text


Last update: March 28, 2013

Back to Top