The Federal Reserve Board ("FRB") issued the results of its yearly Comprehensive Capital Analysis and Review ("CCAR"). CCAR is an assessment of the capital adequacy and capital planning of large bank holding companies. The FRB approved 34 capital plans (three with conditions) out of 35 participants.
CCAR includes both qualitative and quantitative assessments to rate a firm's ability to maintain adequate capital in the event of market stress. Under the quantitative assessments, the FRB considers a firm's internal stress test results, as well as capital ratio estimates following the application of various stress scenarios. Projections are developed under baseline, adverse and severely adverse scenarios. Under the qualitative assessment, the FRB reviews a firm's capital planning processes, including risk management and internal controls. Of the 35 participating firms, 18 were subject to both quantitative and qualitative assessments, while 17 were subject only to the quantitative assessment.
For the firm that received an objection, the FRB found "material weaknesses in capital planning," in particular identifying weaknesses in (i) data capabilities and controls, (ii) the approach to revenue and loss forecasting and (iii) risk management.
Of the three firms that received conditional non-objections, two failed to meet the capital ratio threshold due to the "one-time negative impact" of the recently passed tax reform law. These firms agreed to limit capital distributions to amounts that were paid in previous years. The FRB will require the third firm to undertake additional risk management measures.
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