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Board of Governors of the Federal Reserve System
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Comprehensive Capital Analysis and Review 2014: Assessment Framework
and Results


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 manage their capital. This process helps ensure that these BHCs have sufficient capital to withstand highly stressful operating environments and be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries.

Capital is central to a BHC's ability to absorb losses and continue to lend to creditworthy businesses and consumers. The 2007-09 financial crisis illustrated that confidence in the capitalization and overall financial strength of a BHC can erode rapidly in the face of changes in current or expected economic and financial conditions. More importantly, the crisis illustrated that a loss of investor and counterparty confidence in the financial strength of a BHC might not only imperil that BHC's viability, but also harm the broader financial system.

Large BHCs have built a significant amount of capital since the crisis, in part due to supervisory programs like CCAR. (For more information on recent trends in capital levels, see box 1.) All but two BHCs participating in this year's CCAR are expected to build capital between the second quarter of 2014 and the first quarter of 2015, based on their planned capital actions, under their baseline scenario. In the aggregate, BHCs would distribute 40 percent less than their projected net income over the same period.

In November 2011, the Federal Reserve 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.1 Under the rule, these capital plans must include detailed descriptions of the following: the BHC's internal processes for assessing capital adequacy; the policies governing capital actions such as common stock issuance, dividends, and share repurchases; and all planned capital actions over a nine-quarter planning horizon. Further, each BHC must also report to the Federal Reserve the results of stress tests conducted by the BHC under a number of scenarios (company-run stress tests) that assess the sources and uses of capital under baseline and stressed economic and financial conditions.

Through CCAR, the Federal Reserve seeks to ensure that large BHCs have thorough and robust processes for managing their capital resources. Such processes should be supported by effective firm-wide risk-identification, risk-measurement, and risk-management practices and ongoing consideration of the potential for stressful outcomes, with strong oversight by boards of directors and senior management. The Federal Reserve expects each BHC to incorporate, as part of its capital-planning process, analysis of the potential for significant and rapid changes in the risks it faces, including risks generated by a marked deterioration in the economic and financial environment as well as pressures that may stem from firm-specific events. Sufficient capital to continue to operate through such environments is critical to enhancing the resiliency of the largest BHCs and to promoting a more stable financial system that is strong enough to weather stressful events in the future.

CCAR is also designed to help both the BHC and the Federal Reserve evaluate whether a BHC's capital accretion and distribution decisions are prudent, given inherent uncertainty about the future. The CCAR process also can help act as a counterweight to pressures that a BHC may face to use capital distributions to signal financial strength, even in a highly stressful environment.

CCAR is a key element of the Federal Reserve's approach to the supervision of the largest BHCs, focusing on the financial resiliency of the BHCs and an assessment of their capacity to continue to function throughout periods of severe stress. Through CCAR, a BHC's capital adequacy is evaluated on a forward-looking, post-stress basis as the BHCs are required to demonstrate in their capital plans how they will maintain, throughout a very stressful period, capital above a tier 1 common ratio of 5 percent and above minimum regulatory capital requirements. Additionally, in CCAR the Federal Reserve expands upon its firm-specific supervisory practices by undertaking a simultaneous, horizontal assessment of capital adequacy and capital planning practices at the largest U.S. BHCs, thus allowing the process to be informed by assessments of these BHCs individually and as a group.

CCAR 2014 incorporated the transition arrangements and minimum capital requirements from the revised regulatory capital framework implementing the Basel III regulatory capital reforms the Board finalized in July 2013.2 (See box 2 for more on the incorporation of the revised capital framework into CCAR).

This year's CCAR covered 30 large BHCs, including 12 BHCs that did not participate in previous CCAR exercises.3 (See table 1 for a list of the BHCs participating in CCAR 2014).

The remainder of this report summarizes the results of CCAR 2014, including supervisory estimates of each BHC's post-stress capital ratios under the supervisory severely adverse and supervisory adverse scenarios and the Federal Reserve's objection and non-objection decisions on the BHC's 2014 capital plans and associated capital actions. It also describes the assessment framework that the Federal Reserve used in reviewing the capital plans from both quantitative and qualitative perspectives.4

Table 1. CCAR 2014 BHC names and new participants
BHCs in bold italics are new CCAR participants in 2014
Bank holding company BHC short name
Ally Financial Inc. Ally
American Express Company American Express
Bank of America Corporation Bank of America
The Bank of New York Mellon Corporation Bank of NY-Mellon
BB&T Corporation BB&T
BBVA Compass Bancshares, Inc. BBVA Compass
BMO Financial Corp. BMO
Capital One Financial Corporation Capital One
Citigroup Inc. Citigroup
Comerica Incorporated Comerica
Discover Financial Services Discover
Fifth Third Bancorp Fifth Third
The Goldman Sachs Group, Inc. Goldman Sachs
HSBC North America Holdings Inc. HSBC
Huntington Bancshares Incorporated Huntington
JPMorgan Chase & Co. JPMorgan Chase
KeyCorp KeyCorp
M&T Bank Corporation M&T
Morgan Stanley Morgan Stanley
Northern Trust Corporation Northern Trust
The PNC Financial Services Group, Inc. PNC
RBS Citizens Financial Group, Inc. RBS Citizens
Regions Financial Corporation Regions
Santander Holdings USA, Inc. Santander
State Street Corporation State Street
SunTrust Banks, Inc. SunTrust
U.S. Bancorp U.S. Bancorp
UnionBanCal Corporation UnionBanCal
Wells Fargo & Company Wells Fargo
Zions Bancorporation Zions

Box 1. Overview of Trends in Capital Levels for Large U.S. BHCs

The 30 BHCs that are part of this year's CCAR hold 80 percent of the total assets of all U.S. BHCs. The amount and quality of capital held by these institutions have continued to improve, contributing to increased resilience of the banking sector and a strengthening of the financial system more broadly. One of the initial driving forces behind these improvements was the 2009 Supervisory Capital Assessment Program (SCAP), which was led by the Federal Reserve, and included a stress test of the 19 largest domestic BHCs. Building on the SCAP, the Federal Reserve conducted the first annual CCAR in 2011 and in the same year issued the capital plan rule. Since the Board issued the capital plan rule in 2011, CCAR has become an annual exercise and is the cornerstone of the Federal Reserve's supervisory program for the largest BHCs, which has as its key area of focus the financial resiliency of these firms under stress. The program has led to stronger capital at BHCs and significant improvements in risk-measurement and risk-management capabilities across the firms.

As shown in figure A, the aggregate tier 1 common equity ratio of the 30 BHCs in the 2014 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 11.6 percent in the fourth quarter of 2013.1 That gain reflects a total increase of more than $511 billion in tier 1 common equity from the beginning of 2009 among these BHCs to $971 billion in the fourth quarter of 2013. BHCs have raised equity from external sources, including the equity raised in connection with the redemption of U.S. government investments under the Troubled Asset Relief Program and requirements to raise capital following the SCAP in 2009. Much of the additional increase in recent years is attributable to a significant accretion of common equity through retained earnings as capital growth has been supported by general improvements in profitability across the banking system.

Figure A. Tier 1 common ratio of CCAR 2014 BHCs

Figure A. Aggregate tier 1 common ratio of CCAR 2014 BHCs
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Note: The dip in the aggregate tier 1 common ratio in the first quarter of 2013 was due to an increase in risk-weighted assets, not a decrease in capital. At the start of 2013, new market risk rules (sometimes known as Basel II.5) took effect, changing the process for calculating market risk-weighted assets. See 12 CFR part 217, subpart F. Between the fourth quarter of 2012 and the first quarter of 2013, aggregate market risk-weighted assets increased by $518 billion, representing more than 97 percent of the total increase in aggregate risk-weighted assets. Without the increase in market risk-weighted assets, the aggregate tier 1 common ratio would have been about 70 basis points higher in the first quarter in 2013.

1. Santander Holdings USA, Inc. was not included in this analysis of capital accretion because Santander did not file the FR Y-9C financial report before 2012. Including Santander would add $8.8 billion of tier 1 common capital in the fourth quarter of 2013 and increase the aggregate tier 1 level of the CCAR participants in 2012 and 2013 approximately 1 to 2 basis points. Return to text


1. 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 Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) regulatory report ( Return to text

2. See 12 CFR part 217. Return to text

3. Eleven of the 12 new participants in CCAR 2014 were previously subject to the capital plan rule and the Federal Reserve's capital plan review. However, last year, in order to allow a phase-in of the provisions of the Board's Dodd-Frank Act stress test rules, these BHCs were not subject to certain aspects of CCAR, including the supervisory stress test. This capital-plan cycle is the first time Santander Holdings USA, Inc. has been subject to the capital plan rule or required to file a capital plan with the Federal Reserve. Return to text

4. For additional information on the supervisory adverse and severely adverse scenarios, see Board of Governors of the Federal Reserve System (2013), "2014 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule" (Washington: Board of Governors, November 1),
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Last update: April 15, 2014

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