February 01, 2018
Federal Reserve Board releases scenarios for 2018 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 scenarios banks and supervisors will use for the 2018 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises, and issued instructions to firms participating in CCAR.
Stress tests help make sure that banks will be able to lend to households and businesses even in a serious recession by ensuring that they have adequate capital to absorb losses. CCAR evaluates the capital planning practices and capital adequacy of the largest U.S. bank holding companies, and large U.S. operations of foreign firms, using the firms' planned capital actions such as dividend payments and share buybacks and issuances. The Dodd-Frank Act stress tests are a forward-looking assessment of capital sufficiency using standard assumptions across all firms.
This year, 18 of the largest and most complex firms will be subject to both a quantitative evaluation of their capital adequacy and a qualitative evaluation of their capital planning capabilities, including five foreign firms with U.S. operations for the first time. Twenty firms with less complex operations, including the U.S. operations of one foreign firm, will only be subject to the quantitative portion of CCAR.
The stress tests run by the firms and the Board apply three scenarios: baseline, adverse, and severely adverse. For the 2018 cycle, the severely adverse scenario is characterized by a severe global recession in which the U.S. unemployment rate rises almost 6 percentage points to 10 percent, accompanied by a steepening Treasury yield curve. The adverse scenario features a moderate recession 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 is in line with 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. Eight firms with substantial trading or processing operations will also be required to incorporate a counterparty default scenario. To support the transition to stress testing for foreign firms that are new to the evaluation, the U.S. operations of six foreign firms with significant trading activity will be subject to a simplified global market shock this year and the complete global market shock next year.
Firms participating in CCAR are required to submit their capital plans and stress testing results to the Federal Reserve on or before April 5, 2018. The Federal Reserve will announce the results of its supervisory stress tests by June 30, 2018, with the exact date to be announced later.
|Firm||Only subject to quantitative portion of CCAR||New to CCAR 2018||Subject to global market shock or simplified global market shock for foreign firms||Subject to counterparty default|
|Ally Financial Inc.||X|
|American Express Company||X|
|Bank of America Corporation||X||X|
|The Bank of New York Mellon Corporation||X|
|Barclays US LLC||X||X|
|BBVA Compass Bancshares, Inc.||X|
|BMO Financial Corp.||X|
|BNP Paribas USA, Inc.||X||X|
|Capital One Financial Corporation|
|CIT Group Inc.||X|
|Citizens Financial Group, Inc.||X|
|Credit Suisse Holdings (USA)||X||X|
|DB USA Corporation||X||X|
|Discover Financial Services||X|
|Fifth Third Bancorp||X|
|The Goldman Sachs Group, Inc.||X||X|
|HSBC North America Holdings Inc.||X|
|Huntington Bancshares Incorporated||X|
|JPMorgan Chase & Co.||X||X|
|M&T Bank Corporation||X|
|MUFG Americas Holdings Corporation||X|
|Northern Trust Corporation||X|
|The PNC Financial Services Group, Inc.|
|RBC USA Holdco Corporation||X||X|
|Regions Financial Corporation||X|
|Santander Holdings USA, Inc.||X|
|State Street Corporation||X|
|SunTrust Banks, Inc.||X|
|TD Group US Holdings LLC|
|UBS Americas Holdings LLC||X||X|
|Wells Fargo & Company||X||X|
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