Comprehensive Capital Analysis and Review

Comprehensive Capital Analysis and Review (CCAR) is a regulatory framework introduced by the Federal Reserve in order to assess, regulate, and supervise large banks and financial institutions - collectively referred to in the framework as Bank Holding Companies (BHCs).

The assessment is conducted annually and consists of two related programs:

1. Comprehensive Capital Analysis and Review
2. Dodd-Frank Act supervisory stress testing

The core part of the program assesses whether:

1. BHCs possess adequate capital.
2. The capital structure is stable given various stress-test scenarios.
3. Planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to regulatory minimum capital requirements.

The assessment is performed on both qualitative and quantitative bases. The Federal Reserve may order banks to suspend their planned capital distributions to shareholders until the target capital balance is restored.

Dodd-Frank Act supervisory stress testing

Dodd-Frank Act imposes forward-looking stress testing of Bank's capital structure on a quantitative basis. The annual stress-test scenarios are prescribed by the regulatory body, while the mid-cycle testing may be performed under discretionary scenarios.

As per the new CCAR 2015 instructions, the BHC are liable to take all 3 Stress Scenarios -- Baseline, Adverse, and Severely Adverse.

In addition to the above, BHCs are also asked to design their own scenarios to ensure capital adequacy.

External links

• Information on the FED website
• Key Points from the 2015 CCAR
• PwC Financial Services Risk and Regulatory Practice: 2016 CCAR Results

References