In a speech before the Yale University School of Management Leaders Forum, Federal Reserve System Governor ("FRB") Daniel K. Tarullo outlined the results of an "extensive review" of the Dodd-Frank Act Stress Testing ("DFAST") and the Comprehensive Capital Analysis and Review ("CCAR") programs. The review was undertaken by the FRB following the end of the 2015 testing cycle.
Governor Tarullo described a "package of potential changes" that emerged from the FRB review. He noted that such change would not apply to the upcoming 2017 DFAST/CCAR cycle.
He stated that potential changes to the testing programs would include:
- better alignment of the CCAR with new regulatory capital rules to alleviate confusion (for example, the CCAR currently assumes that a firm will continue to make its planned capital distributions during a stress period even though the regulatory capital rules now include a capital conservation buffer to limit such distributions);
- changing the treatment of planned dividends and share repurchases by switching to a stress capital buffer approach;
- modifying the balance sheet and risk-weighted asset assumptions in the DFAST/CCAR model which currently assume a projected increase in balance sheet activity during a severely adverse scenario;
- considering whether to integrate direct funding shocks into the main stress testing framework rather than integrating system wide effects;
- further researching fire sale dynamics;
- expanding the current counterparty default scenario component for the eight global systemically important banks with a particular focus on the role of Central Counterparties in alleviating stress;
- enhancing transparency by, among other measures: (i) providing more granular disclosures, such as more details on different components of projected net revenues; and (ii) establishing a "Model Validation Group" to regularly assess stress test models; and
- eliminating the qualitative CCAR exercise for smaller firms by proposing that banks with less than $250 billion in assets that do not have significant international or nonbank activity no longer would be included in the annual review.
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