August 19, 2013
Federal Reserve Board releases paper on capital planning at large bank holding companies
For immediate release
Large bank holding companies have considerably improved their capital planning processes in recent years, but have more work to do to enhance their practices for assessing the capital they need to withstand stressful economic and financial conditions, the Federal Reserve said in a paper released on Monday.
In the paper, the Federal Reserve discussed in detail its expectations for internal capital planning at large bank holding companies and described the range of practices it has observed at these companies during the past three Comprehensive Capital Analysis and Review (CCAR) exercises. The Federal Reserve conducts the CCAR annually to help ensure that companies have forward-looking capital planning processes that account for their unique risks and result in sufficient capital to enable the institutions to continue lending to households and businesses during times of economic and financial stress.
The paper, Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice, is intended to promote better capital planning at bank holding companies generally, and to provide greater clarity on the standards against which those practices are evaluated as part of the CCAR exercise. In particular, the Federal Reserve emphasized that bank holding companies, when considering their capital needs, should focus on the specific risks they could face under potentially stressful conditions.
In its evaluation, the Federal Reserve found that firms needed to improve a number of aspects of their capital planning processes, including their accounting for risks most relevant to the specific business activities, their methods of projecting the effect of certain stresses on their capital needs, and their governance of the capital planning processes.
The Federal Reserve will start the 2014 CCAR process in the fall. In addition to the 18 firms that participated in 2013, 12 firms with more than $50 billion in total assets that have not previously been part of the CCAR are expected to participate.
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