On March 6, 2019, the Federal Reserve issued a final rule to exempt from the qualitative component of the Comprehensive Capital Analysis and Review (“CCAR”) exercise large firms that have participated in CCAR for four consecutive years and have passed the final year’s qualitative component without objection.  The final rule serves to provide an immediate exemption for all domestic bank holding companies currently subject to CCAR, and to phase out the qualitative objection for U.S. intermediate holding companies of foreign banks (“IHCs”).

Continue Reading Federal Reserve Eliminates CCAR’s Qualitative Objection for Most Firms

In a November 9, 2018 speech, Federal Reserve Vice Chairman for Supervision Randal K. Quarles outlined potential adjustments to the revisions to the capital planning regime that the Federal Reserve proposed in April 2018.  Governor Quarles also said he will ask the Federal Reserve to exempt banks with less than $250 billion in assets from the Comprehensive Capital Analysis and Review (“CCAR”) quantitative assessment and supervisory stress testing in 2019 in order to facilitate capital planning moving to a biennial exercise for such banks.

Governor Quarles emphasized that the adjustments “are not intended to alter materially the overall level of capital in the system or the stringency of the regime.”  However, the cumulative impact of the changes outlined in his speech would be to ease the implementation of the SCB and streamline CCAR and capital planning.

Continue Reading Capital Planning Framework to Continue its Evolution

On December 7, 2017, the Federal Reserve released three proposals that would increase the transparency of its stress test exercises, including the Dodd-Frank Act Stress Tests (“DFAST”) and Comprehensive Capital Analysis and Review (“CCAR”).  The proposals are comprised of: (1) enhancements to the Federal Reserve’s disclosures regarding its stress test models, (2) amendments to the Federal Reserve’s Policy Statement on the Scenario Design Framework, and (3) adoption of a new policy statement on the Federal Reserve’s approach to developing, implementing, and validating models.  Comments on the three proposals are due by January 22, 2018.

The Federal Reserve’s proposals represent a substantial step toward more transparency in stress testing, but would not provide for full disclosure of the agency’s models.  The preambles to the proposals suggest that the Federal Reserve is seeking to balance the benefits of additional disclosure, including increased public and market confidence in the stress test process, with concerns over the possibility that full disclosure would allow DFAST and CCAR participant firms to “game the system” by shifting their businesses to activities that appear to be advantaged under the models, which in turn could create systemic risk by leading to increased correlations among large firms’ asset holdings.  Each of the three proposals is discussed below.

Continue Reading Federal Reserve Proposes to Increase Stress Test Transparency

On April 4, 2017, Federal Reserve Board Governor Daniel K. Tarullo gave his final speech as a governor before his departure from the Board the next day.  Governor Tarullo, widely considered the “most influential Wall Street regulator” during his term as governor, took the lead for the Federal Reserve in developing the agency’s most significant post-crisis regulations.

In his speech, Governor Tarullo defended the capital and stress testing requirements that the federal banking agencies have imposed on the largest banking organizations since the financial crisis.  Notably, he also identified certain areas where he believed Congress and/or the banking agencies could provide relief to banking organizations without jeopardizing financial stability.  Coming from one of the chief architects of the post-crisis regulatory regime, these remarks are noteworthy because they indicate areas for potential bipartisan consensus as Congress and President Trump’s appointees consider the path forward for regulatory reform.

Continue Reading Governor Tarullo Outlines Path to Regulatory Relief in Final Speech as Federal Reserve Board Member

On January 30, 2017, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) released a final rule amending its capital plan and Comprehensive Capital Analysis and Review (“CCAR”) stress testing rules.

The final rule addresses the following key issues, among others:

  • Qualitative Assessments.  Under the final rule, “large and noncomplex bank holding companies” are no longer subject to the qualitative component of the annual CCAR assessment.  A large and noncomplex bank holding company is defined as any bank holding company (1) with average total consolidated assets between $50 billion and $250 billion; (2) with average total nonbank assets of less than $75 billion; and (3) that is not a global systemically important bank holding company (“G-SIB”).[1]  The Federal Reserve Board will no longer object to a large and noncomplex bank holding company’s capital plan in the annual CCAR assessment based on qualitative deficiencies; rather, the Federal Reserve Board will assess the strength of such a company’s capital planning process through the regular supervision process and targeted, horizontal assessments of capital planning.


Continue Reading The Federal Reserve Board Issues Final Rule Amending Capital Plan and CCAR Stress Test Rules