January 28, 2016
Federal Reserve Board releases supervisory scenarios for 2016 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and issues instructions to firms participating in CCAR
For release at 4:00 p.m. EST
The Federal Reserve Board on Thursday released the supervisory scenarios for the 2016 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and also issued instructions to firms participating in CCAR. This year, CCAR will include 33 bank holding companies with $50 billion or more in total consolidated assets.
CCAR evaluates the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies, including the firms' planned capital actions such as dividend payments and share buybacks and issuances. The Dodd-Frank Act stress tests are a forward-looking component to help assess whether firms have sufficient capital. Strong capital positions can absorb losses and help ensure that banking organizations have the ability to lend to households and businesses even in times of financial and economic stress.
Financial institutions are required to use the supervisory scenarios in both the stress tests conducted as part of CCAR and those required by the Dodd-Frank Act. The outcomes are measured under three scenarios: severely adverse, adverse, and baseline.
"In adjusting the scenarios for our yearly stress testing program, we strive to assess the resilience of the nation's largest banks in a variety of potential adverse environments," Governor Daniel K. Tarullo said. "It is important that the tests not to be too predictable from year to year."
For the 2016 cycle, the severely adverse scenario is characterized by a severe global recession in which the U.S. unemployment rate rises five percentage points to 10 percent, accompanied by a heightened period of corporate financial stress and negative yields for short-term U.S. Treasury securities. The adverse scenario features a moderate recession and mild deflation in the United States, as well as weakening economic activity across all countries included in the scenario. The adverse and severely adverse scenarios describe hypothetical sets of events designed to assess the strength of banking organizations and their resilience. They are not forecasts. The baseline scenario follows a similar profile to average projections from surveys of economic forecasters. It does not represent the forecast of the Federal Reserve.
Each scenario includes 28 variables--such as gross domestic product, unemployment rate, stock market prices, and interest rates--encompassing domestic and international economic activity. Along with the variables, the Board is publishing a narrative that describes the general economic conditions in the scenarios and changes in the scenarios from the previous year.
As in prior years, six bank holding companies with large trading operations will be required to factor in a global market shock as part of their scenarios. Additionally, eight bank holding companies with substantial trading or processing operations will be required to incorporate a counterparty default scenario.
Bank holding companies participating in CCAR are required to submit their capital plans and stress testing results to the Federal Reserve on or before April 5, 2016. The Federal Reserve will announce the results of its supervisory stress tests by June 30, 2016, with the exact date to be announced later.
|Institution||Previous CCAR institution||Institution new to CCAR 2016||Global market shock institution||Counterparty default institution|
|Ally Financial Inc.||X|
|American Express Company||X|
|Bank of America Corporation||X||X||X|
|The Bank of New York Mellon Corporation||X||X|
|BBVA Compass Bancshares, Inc.||X|
|BMO Financial Corp.||X|
|Capital One Financial Corporation||X|
|Citizens Financial Group, Inc.||X|
|Deutsche Bank Trust Corporation||X|
|Discover Financial Services||X|
|Fifth Third Bancorp||X|
|The Goldman Sachs Group, Inc.||X||X||X|
|HSBC North America Holdings Inc.||X|
|Huntington Bancshares Incorporated||X|
|JPMorgan Chase & Co.||X||X||X|
|M&T Bank Corporation||X|
|MUFG Americas Holdings Corporation||X|
|Northern Trust Corporation||X|
|The PNC Financial Services Group, Inc.||X|
|Regions Financial Corporation||X|
|Santander Holdings USA, Inc.||X|
|State Street Corporation||X||X|
|SunTrust Banks, Inc.||X|
|TD Group US Holdings LLC||X|
|Wells Fargo & Company||X||X||X|