NEWS Release - Federal Reserve Board releases scenarios for 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and issues instructions to firms participating in CCAR
The Federal Reserve Board on Friday released the scenarios to be used by banks and supervisors for the 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and also issued instructions to firms participating in CCAR.
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 assessment to help assess whether firms have sufficient capital. 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 they may sustain.
This year, 13 of the largest and most complex bank holding companies will be subject to both a quantitative evaluation of their capital adequacy and a qualitative evaluation of their capital planning capabilities. As announced earlier this week by the Board, 21 firms with less complex operations will no longer be subject to the qualitative portion of CCAR, relieving them of significant burden.
Financial institutions are required to use the 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.
For the 2017 cycle, the severely adverse scenario is characterized by a severe global recession in which the U.S. unemployment rate rises by about 5.25 percentage points to 10 percent, accompanied by a period of heightened stress in corporate loan markets and commercial real estate markets. 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. Additionally, eight bank holding companies with substantial trading or processing operations will be required to incorporate a counterparty default scenario.
The Board is also releasing several letters with additional information on its stress testing program. One letter describes the reduced data required from the 21 firms that have been removed from the qualitative portion of CCAR; a second details enhancements and changes made to certain supervisory loss models; and a third provides an overview of the stress testing program and its expectations for foreign firms that are beginning the stress testing program this year, but are not yet required to publicly report their results under the Board's rules.
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, 2017. The Federal Reserve will announce the results of its supervisory stress tests by June 30, 2017, with the exact date to be announced later.
Copyright: Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551
page source https://www.federalreserve.gov/
