On June 28, 2018, the Federal Reserve (Fed) published the results of its Comprehensive Capital Analysis and Review (CCAR) 2018, the first overseen by new Fed referees – Chairman Jerome Powell and Vice Chair for Supervision Randal Quarles. These results strongly suggest a departure from recent history with new flexibility in the Fed’s stress testing and capital planning program. While one bank received a qualitative objection, three other banks did not maintain minimum capital ratios under stress – even with the mulligan option – marking the first time any bank has experienced this shortfall since CCAR 2014.
While the quantitative test has historically been strictly black and white, with objections and required resubmissions for firms that do not meet the capital requirements, this year the Fed issued conditional non-objections to the three banks and will not require them to resubmit their capital plans or suspend distributions. This new approach, along with last year’s removal of the qualitative objection for a number of firms, indicates the transition of the Fed’s capital stress testing program from its post-crisis role as public bellwether, to being a standard component of the bank supervision toolbox that the Fed wields outside the glare of public attention.
A publication of PwC's financial services regulatory practice.
Financial Services Leader, PwC US