The Federal Reserve, through the supervision and regulation of banking organizations, promotes a safe, sound, and efficient banking and financial system. This oversight supports the U.S. economy by ensuring that banking organizations remain healthy so that they can be a source of strength.
Stress testing is one component of that oversight and allows the Federal Reserve to effectively assess whether firms have sufficient capital to continue operating and lending to households and businesses, even during times of economic and financial market stress.
In particular, the Federal Reserve's stress testing program examines large bank holding companies (BHCs) and the intermediate holding companies (IHCs) of foreign banks (together, firms). The program consists of two primary components:
- The Dodd-Frank Act stress test (DFAST) is a forward-looking quantitative evaluation of bank capital that demonstrates how a hypothetical set of stressful economic conditions developed by the Federal Reserve would affect the capital ratios of large firms.1
- The Comprehensive Capital Analysis and Review (CCAR) includes a quantitative assessment for all firms subject to the supervisory stress test and a qualitative assessment of certain firms' capital planning practices.2 The CCAR quantitative assessment uses the same supervisory stress test results as DFAST and incorporates firms' planned capital actions, such as dividend payments and common stock repurchases.
This document includes Federal Reserve estimates under DFAST of revenues, expenses, losses, pre-tax net income, and capital ratios under the hypothetical scenarios designed by the Board. The post-stress capital ratios are produced using a standardized set of capital action assumptions specified in the Dodd-Frank Act stress test rules. The disclosures are intended to give the public a greater understanding of how large firms would perform during hypothetical recessions.
1. Pub. L. No. 111-203, 124 Stat. 1376 (2010); 12 CFR part 252, subpart E. Return to text
2. For the largest and most complex firms, CCAR includes a qualitative evaluation of a firm's ability to determine its capital needs on a forward-looking basis. Return to text