Introduction
The Federal Reserve promotes a safe, sound, and efficient banking and financial system that supports the growth and stability of the U.S. economy through its supervision of bank holding companies (BHCs), U.S. intermediate holding companies (IHCs) of the U.S. operations of foreign banking organizations, savings and loan holding companies, and state member banks.
The Federal Reserve has established frameworks and programs for the supervision of its largest and most complex financial institutions to achieve its supervisory objectives, incorporating lessons learned from the 2007-09 financial crisis and in the period since. As part of these supervisory frameworks and programs, the Federal Reserve assesses whether BHCs with $100 billion or more in total consolidated assets and U.S. IHCs (together, firms) are sufficiently capitalized to absorb losses during stressful conditions while meeting obligations to creditors and counterparties and continuing to be able to lend to households and businesses. The Board first adopted rules implementing these frameworks and programs in October 2012 and most recently proposed to modify these rules in January 2019.
- The Dodd-Frank Act Stress Test (DFAST) is a forward-looking quantitative evaluation of the impact of stressful economic and financial market conditions on firms' capital. The Federal Reserve carries out the supervisory stress test pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act, as well as the Board's rules. The supervisory stress test serves to inform the Federal Reserve, firms, and the general public of how firms' capital ratios might change under a hypothetical set of stressful economic conditions developed by the Federal Reserve.4
- Comprehensive Capital Analysis and Review (CCAR) includes a quantitative assessment for all firms subject to the supervisory stress test. The CCAR quantitative assessment uses supervisory stress test results, after incorporating firms' planned capital actions, to evaluate firms' capital adequacy and planned capital distributions, such as any dividend payments and common stock repurchases. The Federal Reserve assesses whether firms have sufficient capital to continue operating and lending to creditworthy households and businesses throughout times of economic and financial market stress.
Each year, the Federal Reserve publicly discloses the results of the DFAST and the CCAR quantitative assessment. These disclosures include revenues, expenses, losses, pre-tax net income, and capital ratios under adverse economic and financial conditions projected by the Federal Reserve. The Federal Reserve projects these components using a set of models developed or selected by the Federal Reserve that take as inputs the Board's scenarios and firm-provided data on firms' financial conditions and risk characteristics.
References
4. The Board has proposed to amend its prudential standards to exempt firms with total consolidated assets of less than $100 billion from the supervisory stress test and to subject firms with total consolidated assets between $100 billion and $250 billion to the supervisory stress test requirements on a two-year cycle (83 Fed. Reg. 61408 (November 29, 2018)). Firms with $250 billion or more in total consolidated assets or material levels of other risk factors would remain subject to the supervisory stress test requirements on an annual basis.
On February 5, 2019, the Board announced that it would be providing relief to less-complex firms from stress testing requirements by effectively moving the firms to an extended stress test cycle for 2019. The relief generally applies to firms with total consolidated assets between $100 billion and $250 billion. See Board of Govenors of the Federal Reserve System, "Federal Reserve Board releases scenarios for 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises," press release, February 5, 2019, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190205b.htm. Return to text