The Federal Reserve Board has announced the results of its 2017 Comprehensive Capital Analysis and Review or CCAR.
Forward-looking capital-planning. The CCAR is an annual exercise conducted by the Fed since 2011 to assess whether the largest bank holding companies operating in the United States have sufficient capital to continue operations throughout times of economic and financial stress and that they have robust, forward-looking capital-planning processes that account for their unique risks.
The CCAR generally focuses on quantitative and qualitative factors. Quantitative factors include a firm’s projected capital ratios under a hypothetical scenario of severe economic and financial market stress. Qualitative factors include the strength of the firm’s capital planning process, which incorporate the risk management, internal controls, and governance practices that support the process.
The Fed uses the CCAR to determine whether the BHCs can conduct planned capital actions such as dividend payments and share buybacks, and issuances. If the Fed objects to a capital plan based on the quantitative or qualitative concerns, the BHC may not make any capital distribution unless expressly authorized by the Fed.
Large and noncomplex firms. Recent regulatory amendments removed large and noncomplex firms from the qualitative assessment of CCAR effective for this year’s exercise. Large and noncomplex firms are still required to demonstrate an ability to meet their minimum capital requirements under stress as part of CCAR’s quantitative assessment and will continue to be subject to regular supervisory assessments that examine their capital planning practices.
The BHCs only subject to the quantitative assessment were: Ally Financial Inc.; American Express Company; BancWest Corporation; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; CIT Group Inc.; Citizens Financial Group, Inc.; Comerica Incorporated; Discover Financial Services; Fifth Third Bancorp; Huntington Bancshares Incorporated; KeyCorp; M&T Bank Corporation; MUFG Americas Holdings Corporation; Northern Trust Corporation; Regions Financial Corporation; Santander Holdings USA, Inc.; SunTrust Banks, Inc.; and Zions Bancorporation.
LISCC/large and complex firms. BHCs that are Large Institution Supervision Coordinating Committee (LISCC) or large and complex firms continue to be subject to both the qualitative and quantitative assessment process of CCAR. The LISCC and large and complex firms participating in CCAR 2017 are: Bank of America Corporation; The Bank of New York Mellon Corporation; Capital One Financial Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; JPMorgan Chase & Co.; Morgan Stanley; The PNC Financial Services Group, Inc.; State Street Corporation; TD Group US Holdings LLC; U.S. Bancorp; and Wells Fargo & Company.
Intermediate holding companies. Certain LISCC or large and complex firms that recently formed U.S. intermediate holding companies (IHCs) did not participate in 2017 CCAR. The firms, however, were required under the capital plan rule to submit a capital plan to the Federal Reserve that was subject to a confidential review process. These firms are Barclays US LLC; Credit Suisse Holdings (USA), Inc.; Deutsche Bank USA Corporation; RBC USA Holdco Corporation; and UBS Americas Holdings LLC. Deutsche Bank Trust Corporation is a subsidiary of a newly formed IHC, which has participated in CCAR in previous years and will be subject to the quantitative assessment in CCAR.
Of the 34 BHCs subject to the CCAR, the Fed did not object to their capital plans. However, Capital One Financial Corporation is required to address weaknesses in its capital planning process and resubmit its capital plan by the end of 2017.
Quantitative assessment. According to its "Comprehensive Capital Analysis and Review 2017: Assessment Framework and Results," the Fed estimates that the aggregate common equity tier 1 ratio for the firms participating in this year’s CCAR would decline in the severely adverse scenario from 12.5 percent in the fourth quarter of 2016, the starting point for the exercise, to 7.2 percent at its minimum point over the planning horizon. This post-stress common equity tier 1 ratio is 1.7 percentage points higher than the firms’ aggregate common equity tier 1 ratio in the first quarter of 2009.
Qualitative assessment. Addressing the Qualitative Assessment of the current CCAR report, the Fed observed that, on balance, most of the 13 firms participating in the CCAR 2017 qualitative assessment have continued to strengthen their capital planning practices since last year. However, the Fed also noted that these firms continue to have areas of weaknesses that fall short of meeting supervisory expectations for capital planning. The agency added that it has allowed time for firms to work toward full achievement of our capital planning expectations and as such, expects firms to continue to make steady progress.
Fully committed. Upon receiving the news that it must resubmit its capital plan, Richard D. Fairbank, chairman and CEO of Capital One Financial Corporation said, "We will resubmit our capital plan and are fully committed to addressing the Federal Reserve’s concerns with our capital planning process in a timely manner."
Motivator. Commenting on the CCAR, Fed Governor Jerome H. Powell said, "I’m pleased that the CCAR process has motivated all of the largest banks to achieve healthy capital levels and most to substantially improve their capital planning processes."
Transparency and accountability needed. Rich Foster, Senior Vice President and Senior Counsel for Regulatory and Legal Affairs at the Financial Services Roundtable stated, "Today’s CCAR results show America’s banks are strong, safe, and ready to boost economic growth by deploying sidelined capital back into our communities," He added, "Moving forward, the Federal Reserve Board should implement the Treasury Department’s recent recommendations to modernize the capital planning review process and add needed transparency and accountability measures."
Companies: Ally Financial Inc.; American Express Company; BancWest Corporation; The Bank of New York Mellon Corporation; Barclays US LLC; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; Capital One Financial Corporation; CIT Group Inc.; Citigroup Inc.; Citizens Financial Group, Inc.; Comerica Incorporated; Credit Suisse Holdings (USA), Inc.; Deutsche Bank Trust Corporation; Deutsche Bank USA Corporation; Discover Financial Services; Fifth Third Bancorp; HSBC North America Holdings Inc.; Huntington Bancshares Incorporated; JPMorgan Chase & Co.; KeyCorp; M&T Bank Corporation; Morgan Stanley; MUFG Americas Holdings Corporation; Northern Trust Corporation; RBC USA Holdco Corporation; Regions Financial Corporation; Santander Holdings USA, Inc.; State Street Corporation; SunTrust Banks, Inc.; TD Group US Holdings LLC; The Goldman Sachs Group, Inc.; The PNC Financial Services Group, Inc.; U.S. Bancorp; UBS Americas Holdings LLC; Wells Fargo & Company; Zions Bancorporation
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