US Federal Banking Regulators Release 2018 Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Test Scenarios and Instructions
The US Office of the Comptroller of the Currency and the US Board of Governors of the Federal Reserve System released the 2018 scenarios for the Dodd-Frank Act Stress Test (DFAST), and the Federal Reserve Board issued its instructions to the firms participating in the 2018 Comprehensive Capital Analysis and Review (CCAR). The Federal Deposit Insurance Corporation released the scenarios on February 6. The three agencies coordinated in developing the scenarios. Firms with more than $10 billion in total assets are required to perform company run stress tests. Firms with $50 billion or more are also subject to supervisory stress tests. Large bank holding companies and the US operations of non-US banks are subject to CCAR. The Federal Reserve uses the DFAST scenarios for the quantitative portion of CCAR, except that CCAR uses actual planned capital actions while DFAST requires the use of standard assumptions for capital actions.
The DFAST scenarios include baseline, adverse, and severely adverse scenarios, with this year’s severely adverse scenario simulating a severe global recession, with a 6% rise in unemployment and steepening of the Treasury yield curve. The adverse scenario will simulate a moderate recession in the United States, coupled with weakening global economic activity. For larger institutions, the Federal Reserve Board’s DFAST scenarios also include, as applicable, global market shock and counterparty default components for the adverse and severely adverse scenarios. For 2019, six additional US intermediate holding companies (IHCs) owned by foreign banking organizations will become subject to the global shock requirement due to the size of their trading activities; for 2018, these firms will be subject to a simplified version of the global market shock applicable to the adverse and severely adverse scenarios.
Under the OCC requirements, covered institutions with $10-$50 billion in assets will be required to submit their 2018 DFAST reports using the templates provided by the OCC no later than July 31, 2018, and publish these results between October 15, 2018 and October 31, 2018. Covered institutions with $50 billion in assets or more will be required to submit their 2018 DFAST reports using the templates provided by the OCC no later than April 5, 2018 and publish these results between June 15, 2018 and July 15, 2018 (although not earlier than the Federal Reserve Board publishes the supervisory stress test results for the parent bank holding company of such national bank).
Under the 2018 Federal Reserve Board’s CCAR, 18 financial institutions will be subject to both qualitative and quantitative CCAR evaluations, while an additional 20 financial institutions will only be subject to quantitative CCAR evaluation. Six IHCs will be participating in CCAR for the first time in 2018. Capital plan and stress testing result submissions are due to the Federal Reserve Board no later than April 5, 2018. The results will be announced by the Federal Reserve Board by June 30, 2018. Before the results are announced publicly, the Federal Reserve Board will advise firms of the results of the post-stress capital analysis. Firms will have the opportunity to adjust their planned capital actions. For 2018, such adjustments may include reducing planned capital distributions as well as increasing planned common stock issuances.
View OCC announcement regarding DFAST.
View FRB announcement regarding CCAR and DFAST.
View FDIC announcement regarding DFAST.