From the Vault: It’s CCAR Season
Ahead of the Federal Reserve’s release on Wednesday of 2015 bank stress tests results, we’ve seen a spike in traffic to a piece in our archive that offers a primer on the annual Comprehensive Capital Analysis and Review (CCAR) process and background on its role as a tool in the Fed’s bank supervisory arsenal.
In “CCAR: More than a Stress Test,” economist Beverly Hirtle underscored the broad nature of the assessment, in which supervisors evaluate the quality of large banks’ capital planning alongside a quantitative measure of their overall capital position. The qualitative approach has the Fed considering not only whether a bank meets a regulatory minimum capital ratio under a range of expected and adverse market scenarios, but also whether the bank shows strength in risk management and internal controls, she explained.
In a recent speech on “Stress Testing after Five Years,” Fed Governor Daniel Tarullo highlighted the importance of CCAR’s qualitative assessment and described steps being taken to integrate it into “year-round supervision” of CCAR firms: “While some important features of capital planning are observable only during the formal CCAR process, most of the risk-management and capital planning standards incorporated in CCAR are operative and observable by supervisors throughout the year. . . . Only in unusual circumstances should supervisors learn for the first time during CCAR of significant problems in the quality of the capital planning processes, and only in unusual circumstances should firms be surprised at the outcome of the qualitative assessment.”
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Anna Snider is a cross-media editor in the Federal Reserve Bank of New York’s Research and Statistics Group.