The Board of Governors of the Federal Reserve System ("FRB") released the results of the annual Comprehensive Capital Analysis and Review ("CCAR"), which is an evaluation of the capital adequacy of large U.S. bank holding companies ("BHCs").
For the first time in seven years, the FRB did not object to the capital plans presented by any of the thirty-four BHCs that participated in the CCAR. However, the approval of one of the BHCs was conditioned on a submission of a revised capital plan that remedies certain weaknesses in the capital planning process of the BHC.
In previous years, the review consisted of both a qualitative and quantitative review of all BHCs. This year, the FRB amended its rules to remove "large and noncomplex" BHCs from the qualitative assessment portion of the CCAR. To qualify as a "noncomplex" BHC, an institution must (1) have average total consolidated assets of $50 billion or more, but less than $250 billion, (2) have average total nonbank assets of less than $75 billion, and (3) not be a U.S. global systemically important bank. Twenty-one of the firms in the 2017 review qualified as "large and noncomplex" BHCs and were only subject to the quantitative assessment. The remaining thirteen BHCs were subject to both qualitative and quantitative assessments.
The quantitative review assesses a firm's ability to maintain adequate capital to continue operations in times of market stress or financial crises. As part of this year's assessment, firms were evaluated based on their expected ability to meet capital requirements under adverse conditions through the second quarter of 2018.
The qualitative review analyzes firms' capital planning processes. This evaluation includes an analysis of factors such as risk management, internal controls and methodologies for developing projections. The FRB noted that firms have made progress in these areas, but there is still room for improvement:
"[M]ost of the 13 firms participating in the CCAR 2017 qualitative assessment have continued to strengthen their capital planning practices since last year. However, these firms continue to have areas of weaknesses that fall short of meeting supervisory expectations for capital planning."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.