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Comprehensive Capital Analysis
and Review 2013
Summary Instructions and Guidance
November 9, 2012
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Comprehensive Capital Analysis
and Review 2013
Summary Instructions and Guidance
November 9, 2012
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
iii
Contents
Introduction ............................................................................................................................... 1
Instructions for Submission of Capital Plans ................................................................. 3
Submission Format and Timing ................................................................................................... 3
Coverage of the Submission ........................................................................................................ 3
Incomplete Data ......................................................................................................................... 4
Stress Testing Scenarios ............................................................................................................. 5
Correspondence Related to CCAR .............................................................................................. 7
Mandatory Elements of a Capital Plan ............................................................................ 9
Estimates of Projected Revenues, Losses, Reserves, and Pro Forma Capital Levels ....................... 9
Supporting Documentation for Analyses Used in Capital Plans .................................................... 14
Description of All Planned Capital Actions over the Planning Horizon ........................................... 15
Expected Changes to Business Plans Affecting Capital Adequacy or Funding .............................. 16
Supervisory Expectations for a BHC’s Capital Adequacy Process (CAP) ...................................... 16
Supervisory Assessments of Capital Plans
.................................................................... 17
Quantitative Assessments ......................................................................................................... 17
Qualitative Assessments ........................................................................................................... 19
Federal Reserve Responses to Planned Capital Actions
........................................... 21
Limited Adjustments to Planned Capital Actions ......................................................................... 21
Disclosure of Supervisory Stress Test Results ............................................................................. 21
Resubmissions ......................................................................................................................... 22
Appendix 1: Supervisory Expectations for a Capital Adequacy
Process ....................................................................................................................................... 23
Appendix 2: Disclosure Tables ........................................................................................... 27
1
Introduction
As indicated in the Board’s rule regarding capital
plans (the capital plan rule), the Federal Reserve’s
assessment of capital adequacy for U.S.-domiciled,
top-tier bank holding companies (BHCs) with total
consolidated assets of $50 billion or more will
include consideration of a BHC’s overall financial
condition, risk profile, and capital adequacy on a
forward-looking basis.1 Assessments will also be
made on the overall content of a capital plan and the
strength of the BHC’s capital adequacy process,
including its capital policy.2 Pursuant to the capital
plan rule, 19 of the largest BHCs are required to sub
mit a capital plan approved by the BHC’s board of
directors, or a committee thereof, for the Federal
Reserve’s annual Comprehensive Capital Analysis
and Review (CCAR), irrespective of whether the
BHC intends to undertake any capital distributions
over the planning horizon covered in its capital plan.3
For CCAR 2013, capital plans should be submitted
no later than January 7, 2013.4
extent to which the risk measurement and other
analysis underlying the plan capture and appropri
ately address potential risks stemming from all
activities across the BHC under baseline and
stressed operating conditions;
• the reasonableness of the BHC’s assumptions and
analysis underlying the capital plan and a review of
the robustness of the BHC’s capital adequacy
process;
• the BHC’s capital policy; and
• the BHC’s ability to maintain capital above each
minimum regulatory capital ratio and above a tier 1
common ratio of 5 percent on a pro forma basis
under expected and stressful conditions throughout
the planning horizon.5 See table 1 for a list of these
regulatory minimums.
• the comprehensiveness of the capital plan, includ
ing the suitability of the BHC scenarios, and the
As a part of the supervisory review of the capital
plans, the Federal Reserve will also assess BHCs’
strategies for addressing proposed revisions to the
regulatory capital framework agreed upon by the
Basel Committee on Banking Supervision (BCBS),
commonly known as Basel III, and requirements
arising from the Dodd-Frank Wall Street Reform and
Consumer Protection Act (DFA).6 The Board and
1
5
As outlined in the capital plan rule, the supervisory
review of a BHC’s capital plan includes an assess
ment of
2
3
4
The capital plan rule is codified at 12 CFR 225.8. Asset size is
measured over the previous four calendar quarters as reported
on the FR Y-9C regulatory report.
See section 225.8(e)(1)(i) of the capital plan rule. 12 CFR
225.8(e)(1)(i).
The 19 bank holding companies participating in the 2013
CCAR are Ally Financial Inc.; American Express Company;
Bank of America Corporation; The Bank of New York Mellon
Corporation; BB&T Corporation; Capital One Financial Cor
poration; Citigroup Inc.; Fifth Third Bancorp; The Goldman
Sachs Group, Inc.; JPMorgan Chase & Co.; Keycorp; MetLife,
Inc.; Morgan Stanley; The PNC Financial Services Group, Inc.;
Regions Financial Corporation; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company.
These 19 firms also participated in the 2012 and 2011 CCARs
and the 2009 Supervisory Capital Assessment Program.
The capital plan rule requires capital plans to be submitted by
January 5; however, the Federal Reserve is granting an extension
of this deadline for purposes of CCAR 2013 because January 5,
2013, falls on a Saturday. See section 225.8(d)(1)(ii) of the capi
tal plan rule. 12 CFR 225.8(d)(1)(ii).
6
See section 225.8(e)(1)(i) of the capital plan rule. 12 CFR
225.8(e)(1)(i).
See Basel Committee on Banking Supervision (2010), “Basel
III: A Global Framework for More Resilient Banks and Bank
ing Systems,” (Basel: BCBS, December), www.bis.org/publ/
Table 1. Regulatory Minimum Ratios
Regulatory Ratio
Tier 1 Common Ratio
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
Regulatory
Minimum
5 percent
3 or 4 percent
4 percent
8 percent
* The tier 1 leverage ratio minimum is 3 percent for a BHC with a composite
supervisory rating of “1” or that is subject to the Board’s market-risk rule
(12 CFR part 225, appendix E); for all other BHCs, 4 percent.
2
CCAR Summary Instructions 2013
the other federal banking agencies have begun the
process for adopting the Basel III framework agreed
to by the BCBS and issued three notices of proposed
rulemaking on Basel III in June 2012. In line with
these proposals, the Federal Reserve expects that a
BHC will demonstrate it can achieve, readily and
without difficulty, the ratios required by the Basel III
framework as it would come into effect in the United
States. In particular, the assessment should reflect the
proposed Basel III framework, as described in the
following proposed and final rules:
• Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Minimum Regulatory
Capital Ratios, Capital Adequacy, Transition Pro
visions, and Prompt Corrective Action (Basel III
NPR).7
• Regulatory Capital Rules: Advanced Approaches
Risk-Based Capital Rule; Market Risk Capital
Rule (Advanced Approaches NPR).8
• Risk-Based Capital Guidelines: Market Risk Rule
(Market Risk Final Rule).9
A BHC’s projections regarding Basel III also should
include any capital surcharge for systemically impor
tant financial institutions (SIFIs) and any planned
capital actions including dividends and other distri
butions.10
Each BHC must submit, as part of its capital plan
due January 7, results of its company-run stress test
using three scenarios the Federal Reserve will provide
under the Board’s rules implementing sections
165(i)(1) and (2) of the DFA (DFA stress testing
rules)—baseline scenario (supervisory baseline sce
nario), adverse scenario (supervisory adverse sce
nario), and severely adverse scenario (supervisory
severely adverse scenario). These results should
reflect the capital action assumptions required under
the DFA stress testing rules (DFA stress testing capi
tal actions).11 For the supervisory severely adverse
scenario, which will inform the CCAR post-stress
7
8
9
10
11
bcbs189.pdf; see also Pub. L. No. 111-203, 124 Stat. 1376
(2010).
77 Federal Register 52792 (August 30, 2012).
77 Federal Register 52978 (August 30, 2012).
77 Federal Register 53060 (August 30, 2012).
See Basel Committee on Banking Supervision (2011), “Global
Systemically Important Banks: Assessment Methodology and
the Additional Loss Absorbency Requirement,” rules text,
(Basel: BCBS, November), www.bis.org/publ/bcbs207.htm.
77 Federal Register 62378, 62394–95 (October 12, 2012), to be
codified at 12 CFR 252.146(b).
capital analysis, each BHC must also submit, as part
of its capital plan, estimated pro forma capital ratios
calculated with the BHC’s planned capital actions as
included in a BHC baseline scenario.
In addition to three supervisory scenarios, each BHC
must conduct a stress test based on its own scenarios,
including at least one stress scenario (BHC stress sce
nario) and a baseline scenario (BHC baseline sce
nario), and submit the results, reflecting the BHC’s
planned capital actions under these scenarios, over
the planning horizon. As discussed further below,
under certain conditions a BHC can choose to use
the supervisory baseline scenario as its own baseline
scenario. (See the “Stress Testing Scenarios” section
for further discussion of this topic.)
In conducting its supervisory stress tests of BHCs
under the DFA stress testing rules, the Federal
Reserve will use the same scenarios and assumptions
as the BHCs are required to use under the DFA
stress testing rules to project revenues, losses, net
income, and pro forma capital ratios.12 In addition,
for purposes of informing CCAR post-stress capital
analysis, the Federal Reserve will estimate pro forma
capital ratios in the supervisory severely adverse sce
nario based on the BHCs’ planned capital actions as
included in the BHC baseline scenario.
The Federal Reserve will publish both a summary of
results of the supervisory stress test conducted under
the DFA stress testing rules and a summary of the
post-stress capital analysis component of the CCAR
results by March 31.13 In both cases, the results dis
closed will be only those resulting from the stress
tests under the supervisory severely adverse scenario.
Under the DFA stress testing rules, BHCs are also
required to publish a summary of their stress test
results under the supervisory severely adverse sce
nario (with DFA stress testing capital actions)
between March 15 and March 31.14 The Federal
Reserve expects that the publication of summary
results from both the supervisory and BHC-run
stress tests will enhance public information about
BHCs’ financial condition and the ability of these
BHCs to absorb losses as a result of adverse eco
nomic and financial conditions.
12
13
14
See id. at 62387, 62385.
See id. at 62392, to be codified at 12 CFR 252.136(b) and (c).
See id. at 62395, to be codified at 12 CFR 252.148(c).
3
Instructions for Submission of Capital Plans
This instructions document provides
• general logistics for BHCs’ capital plan
submissions;
• guidelines surrounding the mandatory elements of
a capital plan;
• information on what the Federal Reserve will assess
during CCAR and a description of how the Fed
eral Reserve will quantitatively assess the planned
capital distributions;
• information on the Federal Reserve’s response to
capital plans and planned actions;
• limited adjustments BHCs may make to their
planned capital distributions during the CCAR
exercise;
• a discussion of planned disclosures at the end of
the CCAR exercise;
• information related to required resubmissions fol
lowing CCAR; and
• information for BHCs requesting incremental capi
tal distributions following CCAR.
In addition, appendix 1 provides supervisory expec
tations for effective capital adequacy processes
(CAP).
Submission Format and Timing
Each BHC’s capital plan, along with any proposals
for planned capital actions, should be approved by
the BHC’s board of directors, or committee thereof,
and submitted to the Federal Reserve no later than
January 5 of each calendar year in accordance with
the capital plan rule. As noted earlier, the Federal
Reserve may extend this date. For CCAR 2013, capi
tal plans and proposals for capital actions must be
received no later than January 7.
In connection with the annual CCAR exercise, the
Federal Reserve will use the data and information
provided in the FR Y-14A, FR Y-14Q, and FR
Y-14M regulatory reports as of September 30 of
each calendar year (except for trading and counterparty data, as discussed in more detail below). BHCs
should reference the instructions associated with each
schedule to determine the appropriate submission
date for each regulatory report.15 Data reported on
the FR Y-14Q and FR Y-14M schedules will be used
as the primary input to the annual supervisory stress
test conducted by the Federal Reserve under the
DFA stress testing rules and will be used in the
CCAR analysis. BHCs will report on the FR Y-14A
schedules their estimates of losses, resources available
to absorb those losses, balance sheet positions, and
capital composition on a quarterly basis over the
nine-quarter planning horizon, beginning with the
fourth quarter of the current calendar year.
BHCs are also required to submit qualitative infor
mation supporting their loss and pre-provision net
revenue (PPNR) estimates, including descriptions of
the methodologies used to produce the estimates, as
well as any other analyses that support their capital
plans.
Each BHC must submit its capital plan and any sup
porting information, including the FR Y-14A and
FR Y-14Q schedules, to the Federal Reserve through
a secure collaboration site. BHCs should continue to
submit FR Y-14M schedules using established pro
cesses outlined within the instructions for each regu
latory report.16
Coverage of the Submission
CCAR is a comprehensive assessment that will take
into account all relevant risks to the BHC, such as
estimates of potential losses, including any that are
not explicitly covered by the information requested in
the FR Y-14A, FR Y-14Q, and FR Y-14M. It is the
15
16
See www.federalreserve.gov/reportforms.
See id.
4
CCAR Summary Instructions 2013
responsibility of each BHC to capture all potential
sources of losses from all on{ and off{balance sheet
positions, as well as any other events that have the
potential to impact capital in both baseline and stress
environments. Notably, the Federal Reserve will place
particular focus on assessing the BHC stress scenario
analysis as part of the supervisory assessment of the
completeness and suitability of each BHC’s capital
plan.17
A BHC’s submission of its pro forma, post{stress
capital projections in its capital plan, inclusive of
planned capital actions, must begin with data as of
September 30, and span the nine-quarter planning
horizon, beginning in the fourth quarter of the cur
rent calendar year and conclude at the end of the
fourth quarter, two years out. For CCAR 2013, the
planning horizon will commence at the beginning of
the 4Q12 (October 1, 2012) and conclude at the end
of the 4Q14 (December 31, 2014). The only excep
tion to this planning horizon is with respect to the
Basel III transition plan.
• The as-of date for trading and counterparty posi
tions will be communicated to BHCs that are sub
ject to the global market shock component of the
supervisory scenarios by December 1.
• The Basel III and Dodd-Frank schedule required
under the FR Y-14A should be reported as of Sep
tember 30 of the current calendar year with projec
tions through December 31, five years out. For
CCAR 2013, data should be reported as of Sep
tember 30, 2012, through December 31, 2017,
under the supervisory and BHC baseline scenarios.
Incomplete Data
In general, all BHCs are required to report all data
elements asked for in the FR Y-14A, FR Y-14Q, and
FR Y-14M schedules; however, certain schedules,
worksheets, or data elements may be optional for a
BHC. The instructions for the FR Y-14A, FR
Y-14Q, and FR Y-14M schedules provide details on
how to determine whether a BHC must submit a spe
cific schedule, worksheet, or data element.
Under the capital plan rule, failure to submit com
plete data to the Federal Reserve in a timely manner
may be a basis for objection to a capital plan.18 A
BHC’s inability to provide required data by the due
dates may affect supervisory estimates of losses and
PPNR for the BHC, and bears on the Federal
Reserve’s qualitative assessment of the internal risk
measurement and management practices supporting
a BHC’s capital adequacy processes.
For the FR Y-14Q and FR Y-14M schedules, BHCs
may be asked to resubmit data—either in whole or in
part—after the initial due date as specified in the
associated report instructions if required data ele
ments are missing or errors are found during the data
validation process.19 All resubmissions of data as of
September 30 will be due on or before December 31
of the current calendar year. After this date, the Fed
eral Reserve will adhere to the following guidelines
on any remaining FR Y-14Q and FR Y-14M datarelated issues, for the purpose of producing supervi
sory estimates.
• Missing data or data deficiency: If a BHC’s submit
ted data quality is deemed to be too deficient to
produce a robust supervisory model estimate for a
particular portfolio, the Federal Reserve may
assign a high loss rate (e.g., 90th percentile) or a
conservative PPNR rate (e.g., 10th percentile)
based on portfolio losses or PPNR estimated for
other BHCs. If data that are direct inputs to super
visory models are missing or reported erroneously
but the problem is isolated in a way that the exist
ing supervisory framework can be still used, a con
servative value will be assigned to the specific data.
• Immaterial portfolio: Each BHC has the option to
either submit or not submit the relevant data
schedule for a given portfolio that does not meet a
materiality threshold (as defined in FR Y-14Q and
FR Y-14M instructions). If the BHC does not sub
mit data on its immaterial portfolio(s), the Federal
Reserve will assign a conservative loss rate (e.g.,
75th percentile), based on the estimates for other
BHCs. Otherwise, the Federal Reserve will estimate
losses using data submitted by the BHC.
For the FR Y-14A schedules, BHCs should submit
final and complete data for CCAR 2013 by Janu
ary 7. BHCs may be asked to resubmit data—either
in whole or in part—after this due date should errors
or omissions be found; however, failure to submit
18
19
17
See section 225.8(e)(1)(i)(A) of the capital plan rule. 12 CFR
225.8(e)(1)(i)(A).
See section 225.8(e)(2)(ii) of the capital plan rule. 12 CFR
225.8(e)(2)(ii)
Due dates are specified in the FR Y-14Q and FR Y-14M Gen
eral Instructions, which are available on the Federal Reserve
Board’s website. See supra note 15.
November 9, 2012
complete data to the Federal Reserve in a timely
manner may be a basis for objection to a capital plan.
Stress Testing Scenarios
5
ing the firm; and that the translation of the scenario
into loss, revenue, and post-stress capital projections
is conceptually sound and implemented in a wellcontrolled manner.
Supervisory Scenarios
For purposes of CCAR, BHCs will be required to
submit the results of company-run stress tests based
on three supervisory scenarios (DFA supervisory
stress test scenarios), at least one stressed scenario
developed by the BHC, and a BHC baseline scenario,
as follows:
• BHC baseline: a BHC{defined baseline scenario20
• BHC stress: at least one BHC{defined stress
scenario
• Supervisory baseline: a baseline scenario provided
by the Federal Reserve under the DFA stress test
ing rules
• Supervisory adverse: an adverse scenario provided
by the Federal Reserve under the DFA stress test
ing rules
• Supervisory severely adverse: a severely adverse sce
nario provided by the Federal Reserve under the
DFA stress testing rules
The results of a BHC’s analysis for each scenario
should encompass all potential losses and other
impacts to net income that the BHC might experi
ence under the scenarios above. In all cases, BHCs
should substantiate that their results are consistent
with the specified macroeconomic and financial envi
ronment, and that the components of their results
are internally consistent within each scenario.
For purposes of CCAR, the Federal Reserve will be
incorporating both the supervisory stress test results
and the BHC’s ability to sufficiently capture their
unique vulnerabilities within the BHC scenarios into
the overall supervisory assessment of each BHC’s
capital plan. The Federal Reserve will focus particu
lar attention on the processes surrounding the devel
opment and implementation of the BHC stress sce
nario to ensure that these processes are robust; that
the scenario is of comparable severity for the BHC as
the supervisory severely adverse scenario is for the
banking industry as a whole, and that it captures and
stresses key vulnerabilities and idiosyncratic risks fac
20
A BHC may use the same baseline scenario as the supervisory
baseline scenario if the BHC believes the supervisory baseline
scenario appropriately represents its view of the most likely out
look for the risk factors salient to the BHC. Any BHC electing
to do so should provide appropriate supporting documentation.
Under the DFA stress testing rules, the Federal
Reserve will provide BHCs with a description of the
supervisory scenarios no later than November 15 of
the current calendar year.21 As noted earlier, the Fed
eral Reserve will provide a description of the market
shock scenario by December 1. It is important to
note that the scenarios provided by the Federal
Reserve are not forecasts, but rather hypothetical sce
narios to be used to assess the strength and resilience
of BHC capital in baseline and stressed economic
and financial market environments.
The Federal Reserve will evaluate the BHC’s pro
forma post-stress capital ratios resulting from the
combination of stress performance measures (e.g.,
revenues, losses, and reserves from the supervisory
severely adverse scenario) and the BHC’s planned
capital actions (e.g., planned dividends, issuance, and
repurchases as provided in the BHC baseline sce
nario) against each minimum regulatory capital ratio
and a 5 percent tier 1 common ratio.
For all scenarios except the supervisory baseline and
supervisory severely adverse, a BHC should include
only one capital worksheet within each FR Y-14A
Summary schedule. For the BHC-defined scenarios,
a BHC should include pro forma projections using
the BHC’s planned capital actions as deemed appro
priate by the BHC for that scenario. For the supervi
sory adverse scenario, a BHC should include pro
forma capital projections using the capital action
assumptions required under the DFA stress testing
rules.22 For the supervisory baseline and supervisory
severely adverse scenarios, a BHC should include two
sets of pro forma projections, reported in two sepa
rate capital worksheets within the FR Y-14A Sum
mary schedule—one set of projections using the
BHC’s planned capital actions under the BHC base
line scenario and another set using the DFA stress
testing capital action assumptions as outlined above.
21
22
77 Federal Register 62394 (October 12, 2012), to be codified at
12 CFR 252.144(b).
See 77 Federal Register 62395 (October 12, 2012), to be codified
at 12 CFR 252.146(b).
6
CCAR Summary Instructions 2013
BHC Baseline and Stress Scenarios
Table 2. Capital Worksheet Requirements
Scenario
BHC Baseline
*
Supervisory Baseline
BHC Stress
Supervisory Adverse
Supervisory Severely Adverse
Capital Worksheet 1
Capital Worksheet 2
Planned Capital Actions
n/a
DFA Stress Testing
Capital Actions
Planned Capital Actions
Alternative Capital
Actions
n/a
Planned Capital Actions
n/a
DFA Stress Testing
Capital Actions
DFA Stress Testing
Capital Actions
* If a BHC determines the supervisory baseline scenario to be appropriate for its
own BHC baseline, the BHC may submit identical FR Y-14A Summary
schedules with the exception of the capital worksheets noted above. All BHCs
must complete two capital worksheets for the supervisory baseline and
supervisory severely adverse scenario.
n/a Not applicable.
The following definitions and table 2 illustrate the
number of capital worksheet requirements for each
scenario’s FR Y-14A schedule.
• Planned Capital Actions: a BHC’s planned capital
actions under the BHC baseline scenario
• Alternative Capital Actions: a BHC’s assumed capi
tal actions under the BHC stress scenario
• DFA Stress Testing Capital Actions: capital projec
tions as required under the DFA stress testing
rules23
Six BHCs with large trading operations will be
required to include a global market shock component
as part of their supervisory adverse and severely
adverse scenarios, and conduct a stress test of their
trading book, private equity positions, and counterparty credit exposures as of a particular market close
date.24 The Federal Reserve will provide a set of
hypothetical shocks to the risk factors most relevant
to the trading and counterparty positions. For
CCAR 2013, these BHCs will also be required to
submit additional data to the Federal Reserve related
to their European Exposures in the form of a supple
mental template. This request will be issued no later
than December 1, 2012, along with the set of hypo
thetical risk factor shocks.
A BHC’s scenario design process should involve
development of scenarios that affect the BHC as a
whole, stemming from macroeconomic and financial
market conditions, and should also include potential
BHC-specific events. Assumptions should remain
constant across business lines and risk areas for the
chosen scenario, since the objective is to see how the
BHC as a whole will be affected by a common and
internally consistent scenario. A BHC should con
sider the best manner in which to capture combina
tions of stressful events and circumstances, including
second-order and “knock-on” effects that may result
from the specified economic and financial environ
ment or any potential BHC-specific event.
The BHC baseline scenario should reflect the BHC’s
view of the expected path of the economy over the
planning horizon. A BHC may use the same baseline
scenario as the Federal Reserve baseline scenario if
the BHC believes the Federal Reserve baseline sce
nario appropriately represents their view of the most
likely outlook for the risk factors salient to the
BHC.25
The BHC stress scenario should be based on a coher
ent, logical narrative of a severely adverse economic
and financial market environment and potential
BHC-specific events. The scenario narrative should
detail key events and circumstances that occur in the
scenario. As required in the FR Y-14A Scenario
schedule, BHCs must provide the quarterly trajecto
ries of key macroeconomic and financial variables for
its BHC baseline and BHC stress scenario.
A BHC’s stress scenario should describe a severely
adverse hypothetical combination of circumstances
designed with the BHC’s particular vulnerabilities in
mind. Specifically, and as noted above, the BHC
stress scenario should be designed to stress factors
that affect all of its material exposures and activities,
capturing potential exposures from both on- and offbalance sheet positions. In addition, the forwardlooking analysis required in the BHC stress scenario
should be relevant to the direction and strategy set by
a BHC’s board of directors.26
25
23
24
Id.
The six bank holding companies participating in trading shock
are Bank of America Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stan
ley; and Wells Fargo & Company.
26
See supra note 20.
Additional guidance related to scenario development as part of
stress testing can be found in SR letter 12-7, “Supervisory Guid
ance on Stress Testing for Banking Organizations with More
Than $10 Billion in Total Consolidated Assets,” www
.federalreserve.gov/bankinforeg/srletters/sr1207.htm.
November 9, 2012
Correspondence Related to CCAR
All correspondence and questions regarding this
exercise and related issues should be communicated
to a secure mailbox, the address to which will be pro
vided directly to the 19 CCAR BHCs. Questions will
be catalogued and, where appropriate, written
responses (removing any BHC identifying informa
7
tion) will be provided to all BHCs via secure e-mail.
Any BHC-specific questions submitted to the secure
mailbox will be addressed only with the relevant
BHC via the same secure mailbox. If needed, meet
ings may be scheduled to discuss submitted questions
in more detail; however, only those responses that
come through the secure mailbox will be considered
official.
9
Mandatory Elements of a Capital Plan
The capital plan rule defines a capital plan as “a writ
ten presentation of a company’s capital planning
strategies and capital adequacy process that includes
certain mandatory elements.” These mandatory ele
ments are organized into five main components:
tier 1 common ratio above 5 percent under
expected conditions and the stressed scenarios
required
1. an assessment of the expected uses and sources of
capital over the planning horizon
• a discussion of the results of the stress tests
required by law or regulation, and an explanation
of how the capital plan takes these results into
account
2. a description of all planned capital actions over
the planning horizon
• a description of all planned capital actions over the
planning horizon
3. a discussion of any expected changes to the
BHC’s business plan that are likely to have a
material impact on the BHC’s capital adequacy
or liquidity
The remainder of this section provides additional
detail on these elements.
4. a detailed description of the BHC’s process for
assessing capital adequacy
5. a BHC’s capital policy27
A BHC is required to conduct an assessment of the
expected uses and sources of capital over the plan
ning horizon assuming both expected and stressful
conditions. This assessment must contain the follow
ing elements:
• estimates of projected revenues, losses, reserves,
and pro forma capital levels, including any regula
tory capital ratios (for example, leverage, tier 1 riskbased, and total risk-based capital ratios) and any
additional capital measures deemed relevant by the
BHC, over the planning horizon under expected
conditions and under a range of stressed scenarios,
including any scenarios provided by the Federal
Reserve and at least one stress scenario developed
by the BHC appropriate to its business model and
portfolios
• a calculation of the pro forma tier 1 common ratio
over the planning horizon under expected condi
tions and under a range of stressed scenarios and
discussion of how the company will maintain all
minimum regulatory capital ratios and a pro forma
27
See section 225.8(d)(2) of the capital plan rule. 12 CFR
225.8(d)(2).
Estimates of Projected Revenues,
Losses, Reserves, and Pro Forma
Capital Levels
As noted above, for the purposes of CCAR, BHCs
are to submit capital plans supported by their inter
nal capital adequacy assessment and capital planning
processes and include pro forma analyses in each of
the five scenarios. The Federal Reserve will be assess
ing the processes and practices the BHCs have in
place to carry out this analysis, including the risk
identification, measurement, and management prac
tices supporting their analyses, as well as the gover
nance and controls around these practices. (See
appendix 1 for a discussion of supervisory expecta
tions for capital adequacy processes that support a
BHC’s capital plan.)
Importantly, the format the Federal Reserve uses to
collect the FR Y-14 data does not imply that BHCs
should use any specific methodology to project their
losses and revenues for their stress tests or for any
other internal analysis used to support their capital
plans; rather, a BHC’s submissions for each scenario
should be based on its own processes and analyses.
The Federal Reserve’s qualitative assessment of the
capital plans will focus on the robustness of a BHC’s
internal capital adequacy processes, with a particular
10
CCAR Summary Instructions 2013
focus on the BHC stress scenario and the translation
of the BHC stress scenario into projected losses, rev
enues, and post-stress pro forma capital ratios.
In all cases, BHCs should demonstrate that their
results are consistent with the macroeconomic and
financial environments specified in the scenarios
being used, and that the various components of their
results are internally consistent. For example, it might
be inconsistent to project a shrinking balance sheet
while also projecting large increases in net income in
a stress or baseline environment. BHCs should sub
mit background information on the methodologies
supporting their estimates. This material should
include discussion of key approaches and assump
tions used to measure BHC-wide exposures and to
arrive at stress loss estimates, along with relevant
background on positions or business lines that could
have a material influence on outcomes.
A BHC should clearly identify and document in its
capital plan any aspects of its portfolios and expo
sures (e.g., a contractual loss mitigation arrangement,
exposures not well captured in the reporting frame
work, etc.) that are not adequately captured in the
FR Y-14Q or FR Y-14M and that it believes are
material to loss estimates for its portfolios, as well as
the BHC’s estimate of the potential impact of such
items on loss estimates under the baseline and stress
scenarios.
In general, BHCs should incorporate the following
into their pro forma estimates:
Definition of losses for loans: The losses to be esti
mated for loans held in accrual portfolios in this exer
cise are generally credit losses due to failure to pay
obligations (cash flow losses), rather than discounts
related to mark-to-market (MTM) values. In some
cases, BHCs may have loans that are being held for
sale or which are subject to purchase accounting
adjustments. In these cases, the analysis should
anticipate the change in value of the underlying asset,
apply the appropriate accounting treatment, and
determine the incremental losses.
Loan-loss estimates: BHCs should describe the
underlying models and methods used to project loan
losses, and provide background on the derivation of
estimated losses. Factors that could be cited to sup
port the reasonableness of estimated losses include
(but are not limited to) composition of the loan port
folios within a broad category (e.g., distribution
among Prime, Alt-A, and subprime loans within first
lien residential mortgages) and specific characteristics
of the portfolio within categories or subcategories
(e.g., vintage, credit score, loan-to-value ratio,
regional distribution, industry mix, ratings distribu
tion, or collateral type). Hypothetical behavioral
responses by BHC management should not be con
sidered as mitigating factors for the purposes of this
analysis. For example, hedges already in place should
be accounted for as potential mitigating factors, but
not assumptions about potential future hedging
activities.
Commitments and contingent and potential obliga
tions: The analysis should reflect expectations of cus
tomer draw-downs on unused credit commitments
under each scenario, as well as any assets and expo
sures that might be taken back on the balance sheet
or otherwise generate losses under stressful economic
conditions (e.g., assets held in asset-backed commer
cial paper conduits and other off-balance sheet fund
ing vehicles to which the BHC provides support).
Unconsolidated entities to which the BHC has poten
tial exposure are also within the scope of this exercise
and should be considered. If it is envisioned that
non-contractual support may be provided during a
stressful environment for certain obligations or expo
sures of sponsored or third-party entities, these
should be included in a BHC’s analysis of contingent
or potential obligations, and all associated impacts
should be captured.
Losses on available-for-sale (AFS) and held-to
maturity (HTM) securities: Each BHC should pro
vide projected other-than-temporary impairments
(OTTI) for AFS and HTM securities. OTTI projec
tions should be based on September 30, 2012 posi
tions and should be consistent with specified macro
economic assumptions and standard accounting
treatment. If the BHC bifurcates credit losses from
other losses, the method for deriving the bifurcation
should be provided in supporting documentation.
Allowance for loan losses: BHCs should estimate the
portion of the current allowance for loan losses avail
able to absorb credit losses on the loan portfolio for
each quarter under each scenario, while maintaining
an adequate allowance along the scenario path and at
the end of the scenario horizon. Loan-loss reserve
adequacy should be assessed against the likely size,
composition, and risk characteristics of the loan
portfolio throughout the planning horizon in a man
ner that is consistent with the BHC’s projections of
losses over that scenario.
November 9, 2012
Non{U.S. exposures: Loss, revenue, and loan-loss
reserve projections should cover positions and busi
nesses for the BHC on a global consolidated basis. To
the extent that loss experience on foreign positions is
projected to differ from that on U.S. positions, BHCs
should provide supporting information to explain
those differences. For example, if the BHC is using
different loss rates for foreign positions, those foreign
positions should be explicitly identified and reported
separately, by position or loan type, in the BHC’s
supporting documentation.
Risk-weighted asset (RWA) projections: BHCs should
provide detailed support for all assumptions used to
derive projections of RWAs, including assumptions
related to components of balance sheet projections
(on- and off-balance sheet balances and mix), income
statement projections, underlying risk attributes of
exposures, and any known weakness in the transla
tion of assumptions into RWA estimates for each sce
nario. For example, BHCs should demonstrate how
credit RWAs over the projection horizon are related
to projected loan growth under the macroeconomic
scenario, increased credit provisions or charge-offs
for loan portfolios, and changing economic assump
tions; and how market RWAs are related to market
factors (e.g., equity index levels and bond spreads)
and projected trading revenue.
BHCs should demonstrate that these assumptions
are clearly conditioned on a given scenario and are
consistent with stated internal and external business
strategies. If BHC{specific assumptions (other than
broad macroeconomic assumptions) are used, BHCs
should also describe these assumptions and how they
relate to reported RWA projections. If the BHC’s
models for projecting RWAs rely upon historical rela
tionships, BHC should provide the historical data
and clearly describe why these relationships are
expected to be maintained in each scenario.
To facilitate the Federal Reserve’s analysis of RWA
projections, BHCs will be required to submit addi
tional data to the Federal Reserve related to the bal
ance of total RWAs reported on the Capital work
sheet of the FR Y-14A Summary schedule, including
a decomposition of overall RWA projections into
components reflecting, as appropriate, credit RWAs,
counterparty credit RWAs and market-risk-related
RWAs. This request will be issued no later than
December 1 of the current calendar year.
procedures to project RWAs over the planning hori
zon for any positions subject to the market-risk rule.
For the first quarter of the planning horizon, BHCs
must use the market-risk capital rules in effect on
December 31, 2012, for purposes of identifying posi
tions subject to the market-risk rule and projecting
the RWA amount of these positions.28 For the second
through ninth quarters of the planning horizon,
BHCs must use the market-risk capital rules that will
be in effect on January 1, 2013, for purposes of iden
tifying positions subject to the market-risk rule and
projecting the RWA amount of these positions in
each quarter.29
Any BHC that has not received approval from the
Federal Reserve for one or more models as of Janu
ary 6, 2013, must follow the procedures in the appli
cable market-risk rules to determine the RWA of any
position or portfolio that is not covered by an
approved model. For example, for purposes of any
RWA calculations in the first quarter of the planning
horizon, a BHC must use standard specific risk
charges for any position(s) for which the BHC has
not received specific risk model approval as of
December 31, 2012. Similarly, for purposes of any
RWA calculations in the second through ninth quar
ters of the planning horizon, a BHC must use stan
dard specific risk charges for any position(s) or port
folio(s) for which the BHC has not received specific
risk model approval, incremental risk model
approval, or comprehensive risk model approval as of
January 6, 2013. In addition, if a BHC does not have
an approved Stressed Value at Risk (SVaR) model as
of January 6, 2013, the Federal Reserve will specify a
substitute capital requirement for this charge. By
December 3, 2012, the Federal Reserve will notify in
writing each BHC without an approved SVaR model
of the applicable requirement.30
Balance sheet projections: Balance projections are a
critical input to loss and revenue estimates. BHCs are
expected to demonstrate that the approach used to
generate those projections is consistent internally,
with related processes, and externally, with implica
tions of the macroeconomic scenario. Ultimately,
balances are driven by the dynamic interaction of
various flows through the planning horizon. The
models and business processes used to make balance
28
29
Treatment of trading and counterparty RWA: BHCs
subject to the market-risk rule must use the following
11
30
12 CFR part 225, appendix E.
See Market Risk Final Rule.
See 77 Federal Register 53060, 53100 (August 30, 2012), to be
codified at 12 CFR part 225, appendix E, section 1(c).
12
CCAR Summary Instructions 2013
projections should be sufficiently documented so as
to allow for supervisory assessment.
the shocks should be applied no later than Decem
ber 1 of the current calendar year.32
Balance projections should reconcile to projections
for originations, pay-downs, draw-downs, and losses
under each scenario. In stressed macroeconomic sce
narios, care should be taken to justify major changes
in portfolio composition based, for example, on
assumptions about a BHC’s strategic direction,
including events such as material sales or purchases.
Loan balance projections should be consistent with
internally generated paths of originations, paydowns, draw-downs, losses, purchases, and sales
under any scenario. The losses used in producing bal
ances should be the same as those produced in inter
nal loss estimate modeling for the stress test. Prepay
ment behavior should link to the relevant economic
scenario and the maturity profile of the asset portfo
lio. Any assumed reallocation of assets into securities
or cash should recognize the limits of portfolio trans
formation under stress due to market pressures and
current portfolio characteristics, including the likely
state of interbank lending markets and deposit levels.
Trading BHCs must use the set of hypothetical risk
factor shocks the Federal Reserve provides to pro
duce the profit and loss (P/L) estimates for their trad
ing, private equity, and counterparty credit, and
MTM losses for fair-value assets not held in trading,
including loans held for sale or held for investment
with the fair-value option, and AFS securities. All
estimated losses associated with the global market
shock the Federal Reserve provides as part of the
supervisory scenarios should be reported in the first
quarter of the planning horizon.
External consistency is also an important consider
ation for balance projections. To the extent that
changes in the balance sheet are driven by a BHC’s
strategic direction, care should be taken to document
and explain in detail that underlying assumptions are
reasonable in a stressed economic environment. Spe
cifically, BHCs should evaluate the consequences of
other market participants possibly taking actions
similar to their own in a stressed environment—e.g.,
the possible positive outcomes that might be
obtained if a BHC were to be the only market par
ticipant taking such actions in a particular market
environment are likely to be mitigated if others are
also attempting to take similar actions.
Global market shock for the six largest trading firms:
Six BHCs with substantial trading and counterparty
exposures (trading BHCs) are required to apply a
global market shock to their trading book, private
equity positions, and counterparty credit exposures
as of a particular market close date and estimate
losses.31 The Federal Reserve will provide to these
trading BHCs a set of hypothetical shocks to the risk
factors most relevant to their trading, private equity
and counterparty positions and the date as of which
31
The six BHCs participating in trading shock are Bank of
America Corporation; Citigroup Inc.; The Goldman Sachs
Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; and
Wells Fargo & Company.; see also section 225.8(c) of the capital
plan rule.
In cases in which the specified shocks are not directly
compatible with the BHC’s internal systems, the
BHC is expected to interpolate or extrapolate around
the given points to determine the appropriate shock.
Supporting documentation should include a descrip
tion of the methods used to interpolate or extrapo
late. In cases where there are nonlinearities, BHCs
should not simply multiply their exposures by the
corresponding shocks to arrive at a purely linear P/L
estimate, but should instead use full-revaluation
methods to compute their loss estimates.
The result of the global market shock is to be taken
as an instantaneous loss and reduction of capital cali
brated on the size of applicable trading book posi
tions, private equity positions, and counterparty
credit exposures as of a point in time. BHCs should
not assume a related decline in portfolio positions or
risk-weighted assets as a result of these market shock
losses. The global market shock should be treated as
an add-on that is exogenous to the macroeconomic
and financial market environment specified in the
supervisory stress scenarios.
Fair-value loans: BHCs may have loans that are held
for sale or held for investment, for which they have
adopted fair-value accounting (collectively, fair-value
loans). For fair-value loans not held in the trading
account, trading BHCs should apply the risk factor
shocks for comparable assets in their trading books,
taking into account any forward sales already in
place. The shocks applied to retail and commercial
real estate whole loans should be generally consistent
with the risk factor shocks provided for relevant
AAA-rated whole loans. The corporate loan shocks
should be generally consistent with the risk factor
32
The risk factor shocks will be provided in a format that is analo
gous to that of the FR Y-14Q schedule for Trading, Private
Equity, and Other Fair Value Assets.
November 9, 2012
shocks provided for corporate loans. If trading BHCs
use different assumptions, they should provide sup
porting documentation that includes the assumptions
and explanations for why the assumptions used are
more appropriate than those provided by the Federal
Reserve.
All other BHCs should report any estimated changes
in the value of fair-value loans in other non-interest
income under the conditions specified in the macro
economic scenario (i.e., supervisory baseline, adverse,
severely adverse, or BHC baseline or stress).
Pre-provision net revenue (PPNR): PPNR estimates
should be consistent with the economic and financial
environment specified in the relevant scenario. BHCs
should ensure that PPNR projections are explicitly
based on, and directly tie to, balance sheet and other
exposure assumptions used for related loss estimates.
In addition, BHCs should apply assumptions consis
tent with the scenario and resulting business strategy
when projecting PPNR for fee-based lines of business
(e.g., asset management), while ensuring that
expenses are appropriately taking into account both
the direct impacts of the economic environment (e.g.,
foreclosure costs) and projected revenues.
Residential mortgage representations and warranties:
As part of PPNR, BHCs will be expected to estimate
losses associated with requests by mortgage investors,
including both government-sponsored enterprises
and private-label securities holders, to repurchase
loans deemed to have breached representations and
warranties, or with investor litigation that broadly
seeks compensation from BHCs for losses. BHCs
should consider not only how the macro scenarios
could affect losses from repurchased loans, but also a
range of legal process outcomes, including worse
than-expected resolutions of the various contract
claims or threatened or pending litigation against the
BHC and against various industry participants.
BHCs should provide appropriate support of the
adverse outcomes considered in their analysis.
Mortgage-servicing rights (MSR): All revenue and
expenses related to MSRs and the associated noninterest income and non-interest expense line items
should be reported on the PPNR schedules. BHCs
should not report changes in value of the MSR asset
or hedges within the trading shock. Therefore, if
derivative or other MSR hedges are placed in the
trading book for FR Y-9C purposes and in alignment
with Generally Accepted Accounting Principles,
these hedges should not be stressed as part of the
13
market shock scenario for CCAR purposes. Also,
any BHCs that have adopted fair-value accounting
for all or part of the MSR must not include the MSR
in the market shock exercise.
Operational-risk losses: Projections of losses arising
from inadequate or failed internal processes, people
and systems, or from external events should be
reported by the BHC as operational-risk losses, a
component of PPNR. As highlighted in the FR
Y-14A Summary schedule instructions, examples of
operational-risk loss events include those losses
related to improper business practices (including
class action lawsuits), execution errors, and fraud.
BHCs should specifically consider the possibility of
support for BHC-sponsored entities, as well as poten
tial for charges related to legal reserves and
provisions.
Trading revenues in PPNR: All BHCs are expected to
project PPNR, including trading-related revenues,
conditional on the specifications of the assumed
macroeconomic scenario (supervisory baseline,
adverse, and severely adverse, and BHC baseline and
stress). In this regard, all BHCs with trading activi
ties and private equity investments, including those
BHCs that are not required to apply the global mar
ket shock, should estimate any potential profit and
loss impact that these positions might experience
under the macroeconomic scenario. Estimated
impacts should include those stemming from poten
tial defaults on credit sensitive positions held in the
trading account and from counterparty credit expo
sures, and valuation declines (and recoveries specific
to those declines) on loans, securities and other trad
ing or MTM positions, and private equity invest
ments (regardless of the portfolio in which a private
equity position is booked). Private equity-related loss
estimates should be broken out from other trading or
MTM loss and should include consideration of
drawdowns against commitments.
In making these projections, BHCs should demon
strate that their historical data selection and general
approach is credible and applicable for the assumed
macroeconomic scenario. BHCs should not assume
that trading-related PPNR could never fall below his
torical levels.
For the trading BHCs, these projections should be
made without consideration of any MTM losses on
trading BHCs’ portfolios that result from the global
market shock. The MTM losses resulting from the
global market shock should be treated as separate,
14
CCAR Summary Instructions 2013
one-time losses that occur in the first quarter of the
planning horizon (e.g., 4Q12, for CCAR 2013).
Therefore, BHCs subject to the market shock should
not assume any interaction between the global mar
ket shock and projections of PPNR in the form of
management actions (such as expense cuts) that
would be taken in light of the shock to the trading
portfolio or recoveries of the losses resulting from the
market shock over the scenario time horizon.
Basel III: BHCs are to include estimates, under the
supervisory baseline scenario, of the composition
and levels of regulatory capital, risk-weighted assets,
and leverage ratio exposures used to calculate mini
mum regulatory capital ratios (including the capital
conservation buffer and any SIFI surcharge that may
be required) under the Basel III framework, as set
forth by the Final Market Risk Rule and the pro
posed requirements of the Basel III NPR, the
Advanced Approaches NPR for applicable BHCs,
and the Basel Committee’s SIFI surcharge frame
work. Each BHC’s submission should include sup
porting documentation on all material planned
actions that the BHC intends to pursue in order to
meet the proposed Basel III target ratios, including,
but not limited to, the run-off or sale of existing
portfolio(s), the issuance of regulatory capital instru
ments and other strategic corporate actions. Where
applicable, each BHC should include in its capital
plan its best estimate of the SIFI surcharge the BHC
expects to be subject to, along with an explanation
for its estimate.
Regulatory capital: BHCs are to provide data on the
balances of regulatory capital instruments under cur
rent U.S. capital adequacy guidelines, aggregated by
instrument type based on actual balances as of Sep
tember 30 of the current calendar year and projected
balances as of each quarter end through the remain
ing planning horizon.33 BHCs are to report informa
tion both on a notional basis and on the basis of the
dollar amount included in regulatory capital.
Supporting Documentation for
Analyses Used in Capital Plans
Documentation of risk-measurement practices: Capi
tal plan submissions should include documentation
of key risk identification and measurement practices
supporting the BHC-wide stress testing required in
33
See 12 CFR part 225, Appendices A, D, E, and G; see also sec
tion 225.8(c) of the capital plan rule.
the capital plans. As previously noted, an assessment
of the robustness of these practices is a critical aspect
of the supervisory assessment of capital adequacy
processes, and their application under the BHC stress
scenario will be a particular area of supervisory
focus.
Documentation of internal stress testing methodolo
gies: BHCs should include in their capital plan sub
missions thorough documentation that describes key
methodologies and assumptions for performing stress
testing on their portfolios. Documentation should
clearly describe the model development process, the
derivation of outcomes, and validation procedures, as
well as assumptions concerning new growth and
changes to credit policy. Supporting documentation
should clearly describe internal controls and gover
nance processes around the development of capital
plans. Senior management should provide boards of
directors with sufficient information to facilitate the
board’s full understanding of the stress testing used
by the BHC for capital planning purposes.
Assumptions and approaches: BHCs should provide
credible support for BHC-specific assumptions,
including any known weaknesses in the translation of
assumptions into loss and resource estimates. An
overreliance on past patterns of credit migration (the
basis for roll rate and ratings transition models) may
be a weakness when considering stress scenarios.
BHCs should demonstrate that their approaches are
clearly conditioned on the scenario under study.
While judgment is an essential part of risk measure
ment and risk management, including for loss esti
mation purposes, BHCs should not be overly reliant
on judgment to prepare their loss estimates and
should provide documentation or evidence of trans
parency and discipline around the process. Any man
agement judgment applied should be adequately sup
ported and in line with scenario conditions, should
be consistently conservative in the assumptions made
to arrive at loss rates, and there should be appropri
ate challenge of assumptions by senior management
and the board of directors.
Documentation related to the BHC scenario assump
tions: BHCs should include appropriate documenta
tion related to their individual approach to the BHC
baseline and BHC stress scenario in their capital plan
submission. As detailed in the FR Y-14A Scenario
Schedule instructions, BHCs are required to provide
detailed supporting documentation and a listing of
all key variables assumed for each scenario. The Sce
nario Schedule should be complete, and the variables
November 9, 2012
listed should be comprehensive and appropriate for
each BHC. In addition, BHCs should provide
detailed documentation describing all methodologies
and key assumptions impacting the BHCs’ loss and
PPNR estimates. Supervisors will focus particular
attention on a BHC’s ability to adequately support
the approach and methodologies used for its BHC
scenarios.
Validation and independent review: In addition to
being properly documented, models employed by
BHCs should be independently validated or other
wise reviewed in line with model-risk management
expectations presented in existing supervisory guid
ance. While use of existing risk-measurement models
and processes provides a useful reference point for
considering stress scenario potential loss estimates,
BHCs should consider whether these processes gener
ate outputs that are relevant in a stressful scenario.
Use of such models may need to be supplemented
with other data elements and alternative methodolo
gies. It is critical that BHCs assess the vulnerability of
their models to error, understand any other limita
tions, and consider the risk to the BHC should esti
mates based on those models prove materially inaccu
rate.34
Description of All Planned Capital
Actions over the Planning Horizon
A BHC’s capital plan must describe all planned capi
tal actions over the planning horizon. As described in
the capital plan rule, a capital action is any issuance
of a debt or equity capital instrument, capital distri
bution, and any similar action that the Federal
Reserve determines could impact a BHC’s consoli
dated capital. A capital distribution is a redemption
or repurchase of any debt or equity capital instru
ment, a payment of common or preferred stock divi
dends, a payment that may be temporarily or perma
nently suspended by the issuer on any instrument
that is eligible for inclusion in the numerator of any
minimum regulatory capital ratio, and any similar
transaction that the Federal Reserve determines to be
in substance a distribution of capital.
To meet the requirements of the DFA stress testing
rule, a BHC must calculate its pro forma capital
ratios using the following assumptions regarding its
34
See SR letter 11-7, “Guidance on Model Risk Management,”
www.federalreserve.gov/bankinforeg/srletters/sr1107.htm, for
additional information regarding model validation.
15
capital actions over the planning horizon for each of
the supervisory baseline scenario, the supervisory
adverse scenario, and the supervisory severely
adverse scenario:
• for the first quarter of the planning horizon, the
BHC must take into account its actual capital
actions taken throughout the quarter
• for each of the second through ninth quarters of
the planning horizon, the BHC must include in the
projections of capital
—common stock dividends equal to the quarterly
average dollar amount of common stock divi
dends that the company paid in the previous
year (that is, the first quarter of the planning
horizon and the preceding three calendar
quarters)
—payments on any other instrument that is eligible
for inclusion in the numerator of a regulatory
capital ratio equal to the stated dividend, inter
est, or principal due on such instrument during
the quarter
—an assumption of no redemption or repurchase
of any capital instrument that is eligible for
inclusion in the numerator of a regulatory capi
tal ratio35
As part of the CCAR capital plan submission, BHCs
should calculate pro forma capital ratios using their
planned capital actions over the planning horizon
under the BHC baseline scenario and the alternative
capital actions projected to be taken under the BHC
stress scenario. With respect to the planned capital
actions under the BHC baseline scenario,
1. for the first quarter of the planning horizon, the
BHC must take into account the actual capital
actions taken during that quarter; and
2. for each of the second through ninth quarters of
the planning horizon, the BHC must include any
capital actions proposed in its capital plan.
In the second quarter of the planning horizon, a
BHC should include capital actions in an amount
that is no greater than the amount in the BHC’s most
recently approved capital plan. For net repurchases in
the second quarter of the planning horizon, the BHC
should submit an amount not greater than the
unused portion of cumulative net repurchases under
the BHC’s most recently approved capital plan,
35
77 Federal Register 62378, 62394–95 (October 12, 2012), to be
codified at 12 CFR 252.146(b).
16
CCAR Summary Instructions 2013
where cumulative for CCAR 2013 is defined as the
period beginning in 2Q12 and ending in 1Q13.
With respect to a BHC’s projections under the super
visory baseline and severely adverse scenarios, the
BHC must calculate two sets of pro forma capital
ratios on the two capital worksheets within the FR
Y-14A Summary schedule using (1) the prescribed
capital actions under the DFA stress testing rule; and
(2) the BHCs planned capital actions in the BHC
baseline scenario. As described below, the planned
capital actions under consideration by the Federal
Reserve in its supervisory stress test under the capital
plan rule will be those proposed in the BHC baseline
scenario.
Expected Changes to Business Plans
Affecting Capital Adequacy
or Funding
Each BHC should include in its capital plan a discus
sion of any expected changes to the BHC’s business
plan that are likely to have a material impact on the
BHC’s capital adequacy and funding profile.
Examples of changes to a business plan that may
have a material impact could include a proposed
merger or divestiture, changes in key business strate
gies, or significant investments. In this discussion, the
company should consider not just the impacts of
these expected changes, but also the potential adverse
consequences should the actions described above not
result in the planned changes—e.g., a merger plan
falls through, a change in business strategy is not
achieved, or there is a loss on the planned significant
investment.
Supervisory Expectations for a BHC’s
Capital Adequacy Process (CAP)
An important component of a BHC’s capital plan is
a description of the BHC’s process for assessing capi
tal adequacy.36 A BHC’s CAP should reflect a full
understanding of its risks and ensure that it holds
capital corresponding to those risks to maintain capi
tal adequacy. The detailed description of a compa
ny’s CAP should include a discussion of how, under
stressful conditions, the BHC will maintain capital
commensurate with its risks—above the minimum
regulatory capital ratios—and serve as a source of
strength to its depository institution subsidiaries.
36
See appendix 1 for a detailed description of supervisory expec
tations for CAP.
17
Supervisory Assessments of Capital Plans
To support its assessment of the capital plans, the
Federal Reserve will review the supporting analyses
in a BHC’s capital plan, including the BHC’s own
stress test results, and will generate supervisory esti
mates of losses; revenues; loan-loss reserves; and pro
forma, post-stress capital ratios using internally
developed supervisory models and assumptions
wherever possible. Supervisory models and assump
tions will be applied in a consistent manner across all
BHCs. Where it may not be feasible to develop
results directly through the use of supervisory mod
els, the Federal Reserve may incorporate into its
supervisory estimates one or more of the following:
(1) BHC estimates, reviewed and adjusted (where
applicable) by the Federal Reserve to ensure the sce
nario was applied as specified and BHC’s assump
tions of potential losses and earnings reflect a cred
ible and conservative translation of the impacts from
the stress scenario; (2) industry models; and
(3) simple decision rules using conservative assump
tions consistently applied across all BHCs.
Quantitative Assessments
The various types of quantitative assessments that
the Federal Reserve expects to consider are described
in figure 1:
Pro Forma Capital Ratios
As part of CCAR, the Federal Reserve will use
BHCs’ planned capital actions in the BHC baseline
scenario as the actions that are subject to supervisory
evaluation in the baseline scenario and in the supervi
sory severely adverse scenario. In other words, the
Federal Reserve will in part be assessing if a BHC
would be capable of continuing to meet supervisory
expectations for minimum capital ratios (the leverage,
tier 1 risk-based, and total risk-based capital ratios)
and a tier 1 common capital ratio of at least 5 per
cent throughout the planning time horizon even if
Figure 1. Quantitative Assessments of Capital Actions
Pro Forma Capital Ratios
Common Dividend Payout Ratio
Basel III Transition Path
BHC Stress
Alternative Capital Actions
Supervisory Adverse
DFA Stress Testing Capital Actions
Supervisory Severely Adverse
Planned Capital Actions
DFA Stress Testing Capital Actions
BHC Baseline*
Planned Capital Actions
Supervisory Baseline*
Planned Capital Actions
DFA Stress Testing Capital Actions
Note: Each box indicates a distinct scenario that will be submitted by each BHC. Planned capital actions are estimated by each BHC using the BHC baseline scenario and the
alternative capital actions are estimated under the BHC’s stress scenario in accordance with the BHC’s internal capital policies.
*If a BHC determines the supervisory baseline scenario to be appropriate for their own BHC baseline, the BHC may submit identical FR Y-14A Summary schedules with the
exception of the capital worksheets noted above. All BHCs must complete two capital worksheets for the supervisory baseline and supervisory severely adverse scenario.
18
CCAR Summary Instructions 2013
severely adverse stress conditions emerged and the
BHC did not reduce planned capital distributions.
to meeting the conservation buffer under the timeframe described in the Basel III NPR.39
A quantitative assessment of the appropriateness of
planned capital actions will also be evaluated based
on its common dividend payout ratio (common divi
dends relative to net income available to common
shareholders) in the baseline scenarios, and its pro
jected path to compliance with Basel III under the
supervisory baseline scenario as Basel III is phased in
in the United States.
In November 2011, the BCBS published its method
ology for assessing an additional loss absorbency
requirement for global systemically important banks
(SIFI surcharge) that effectively extends the capital
conservation buffer.40 Each BHC’s Basel III transi
tion plan should incorporate management’s best esti
mate of the likely SIFI surcharge that would be
assessed under this methodology (and any updates
published since that time) and a description of how
this estimate was derived. The Federal Reserve
expects that BHCs will demonstrate with great assur
ance that, assuming the framework is adopted in the
form agreed by the Basel Committee inclusive of a
SIFI surcharge, they can achieve the required ratios
readily and without difficulty over the transition
period, inclusive of any planned capital actions.
Changes to proposed capital distributions after the
initial submission may require submission of a
revised plan in a subsequent quarter.37 The Federal
Reserve will use the dollar amount of distributions
contained in a BHC’s FR Y-14A when assessing
capital plans. The Federal Reserve’s decision to
object, or issue a notice of non-objection, to a capital
plan will be specific to each BHC’s planned capital
actions.
Common Dividend Payouts
The Federal Reserve expects that capital plans will
reflect conservative common dividend payout ratios.
In particular, requests that imply common dividend
payout ratios above 30 percent of projected after-tax
net income available to common shareholders in
either the BHC baseline or supervisory baseline will
receive particularly close scrutiny.
Basel III Transition Plans
As part of CCAR, the Federal Reserve will continue
to evaluate whether the proposed capital actions are
appropriate in light of the BHC’s plans to meet the
proposed Basel III requirements. As part of its capi
tal plan submission, a BHC should provide a transi
tion plan that includes pro forma estimates under
baseline conditions of the BHC’s regulatory capital
ratios under the proposed Basel III capital frame
work as it would be implemented in the United
States.38 As stated in the September 2010 Group of
Governors and Heads of Supervision agreements,
BHCs that meet the minimum ratio requirement dur
ing the Basel III transition period but remain below
the 7 percent tier 1 common equity target (minimum
plus conservation buffer) will be expected to main
tain prudent earnings retention policies with a view
37
38
See sections 225.8(d)(4) and (f) of the capital plan rule. 12 CFR
225.8(d)(4) and (f).
See supra notes 7–10.
A BHC should, through its capital plan, demonstrate
an ability to maintain no less than steady progress
along a path between its existing Basel III estimated
capital ratios and the fully phased in Basel III
requirement in 2019. The Federal Reserve will closely
scrutinize plans that fall short of this supervisory
expectation.
Some BHCs may exceed the transition targets over
the near term, but not yet meet the fully-phased-in
targets. Those BHCs are expected to submit plans
reflecting steady accretion of capital at a sufficient
pace to demonstrate continual progress toward full
compliance with the proposed Basel III framework as
proposed to be implemented in the United States,
avoiding the need to attempt to achieve back-loaded
increases in capital ratios in an uncertain future
environment.
The Federal Reserve expects that any BHC perfor
mance projections that suggest that ratios would fall
below the transitional Basel III targets at any point
over the Basel III projection period would be accom
panied by proposed actions that reflect affirmative
steps to improve the BHC’s capital ratios, including
actions such as external capital raises, to provide
great assurance that the BHC would continue to meet
the Basel III transition targets.
39
40
See 77 Federal Register 52792, 52864 (August 30, 2012), pro
posed section __.300(b) of the Basel III NPR.
See supra note 10.
November 9, 2012
Qualitative Assessments
Qualitative assessments are also a critical component
of the CCAR review. Even if the supervisory stress
test for a given BHC results in a post-stress tier 1
common capital ratio exceeding 5 percent and other
regulatory capital ratios above the minimums, the
Federal Reserve could nonetheless object to that
BHC’s capital plan for other reasons. These reasons
include the following:
• The BHC’s capital adequacy process, including the
risk measurement and management practices sup
porting this process, are not sufficiently robust.
• The CCAR assessment results in a determination
that a BHC’s CAP or proposed capital distribu
tions would otherwise constitute an unsafe or
unsound practice, or would violate any law, regula
tion, Board order, directive, or any condition
imposed by, or written agreement with, the
Board.41
• There are outstanding material unresolved supervi
sory issues.
• Assumptions and analyses underlying the BHC’s
capital plan are inadequate.
19
41
See section 225.8(e)(2)(ii) of the capital plan rule. 12 CFR
225.8(e)(2)(ii).
21
Federal Reserve Responses
to Planned Capital Actions
After performing appropriate analysis, the Federal
Reserve will, by March 31, either object or provide a
notice of non-objection to the submitted capital plan
based on assessments of the comprehensiveness and
quality of the plan, pro forma, post-stress capital
ratios under the scenarios, and Basel III transition
plan. The Federal Reserve could object in whole or in
part to the proposed capital actions in the plans. The
supervisory assessment will be conducted across the
entire nine-quarter planning horizon; however, the
object or non-object decision applies specifically to
capital actions during the four quarters beginning
with the second quarter of the following calendar
year. For CCAR 2013, this will apply to the 2Q13
through 1Q14 capital actions.
Submissions that are late, incomplete, or otherwise
unclear could result in an objection to the plan and a
mandatory resubmission of a new plan, which may
not be reviewed until the following quarter. Upon the
Federal Reserve’s objection to a capital plan, the
BHC may not make any capital distribution other
than those capital distributions with respect to which
the Federal Reserve has indicated in writing its non
objection.42
Based on a review of a BHC’s capital plan, support
ing information, and data submissions, the Federal
Reserve may require additional supporting informa
tion or analysis from a BHC, or require it to revise
and resubmit its plan. Any of these may also result in
the delay of evaluation of capital actions until a sub
sequent calendar quarter.
It is important to note that the capital adequacy pro
cess described in the capital plan rule is equivalent to
an internal capital adequacy assessment process
(ICAAP) under the Federal Reserve’s advanced
approaches capital guidelines.43 Accordingly, the
seven principles articulated in the appendix to these
42
43
See section 225.8(e)(2)(iv) of the capital plan rule. 12 CFR
225.8(e)(2)(iv).
73 Federal Register 44620 (July 31, 2008).
instructions are consistent with the U.S. federal bank
ing agencies’ supervisory guidance relating to the
ICAAP under the advanced approaches guidelines. If
the Federal Reserve identifies substantial weaknesses
in a BHC’s capital adequacy process, that finding on
its own could justify an objection to a BHC’s capital
plan. However, a non-objection to a BHC’s capital
plan does not necessarily mean that a BHC is consid
ered to have a fully satisfactory capital adequacy
process.
Limited Adjustments to Planned
Capital Actions
Upon completion of the quantitative and qualitative
assessments of BHCs’ capital plans, but prior to the
disclosure of the final CCAR results, each BHC will
be provided the results of the post-stress capital
analysis for its firm and given an opportunity to
make a one-time adjustment to planned capital distri
butions. The only adjustment that will be considered
is a reduction from the initially planned capital distri
butions. The final decision to object or not object will
be informed by the adjusted capital distribution plans
with consideration given to the qualitative assessment
in the context of the quantitative analysis.
Disclosure of Supervisory
Stress Test Results
At the end of the CCAR process, the Federal Reserve
intends to publish two sets of results based on the
Federal Reserve’s supervisory stress tests under the
supervisory severely adverse scenario. The Federal
Reserve will provide the detailed results of supervi
sory stress tests for each BHC, including stressed
losses and revenues, and the post-stress capital ratios
based on the capital action assumptions required
under the DFA stress testing rule, along with an over
view of methodologies used for supervisory stress
tests.
22
CCAR Summary Instructions 2013
The Federal Reserve will also publish the BHCspecific post-stress pro forma regulatory capital
ratios (leverage, tier 1 risk-based, and total risk-based
capital ratios) and the tier 1 common ratio estimated
using the planned capital actions in the BHCs’ capital
plans. The disclosed information will include mini
mum values of these ratios over the planning hori
zon, using the originally submitted planned capital
actions under the baseline scenario and any adjusted
capital distributions in the final capital plans, where
applicable. (See appendix 2 for the format that will be
used to publish these numbers.)
Both sets of results, with the overview of methodolo
gies and other information related to supervisory
stress tests and CCAR, will be published by
March 31, 2013.
Resubmissions
If a BHC receives an objection to its capital plan it
must resubmit within 30 days unless that period is
extended by the Federal Reserve. The Federal
Reserve at all times retains the ability to ultimately
object to capital distributions in future quarters if a
BHC exhibits a material decline in performance or a
deteriorating outlook materially increases BHCspecific risks.
As detailed in the capital plan rule, a BHC must
update and resubmit its capital plan if it determines
there has been or will be a material change in the
BHC’s risk profile (including a material change in its
business strategy or any material risk exposures),
financial condition, or corporate structure since the
BHC adopted the capital plan. Further, the Federal
Reserve may direct a BHC to revise and resubmit its
capital plan for a number of reasons, including if a
stress scenario developed by a BHC is not appropri
ate to its business model and portfolios, or changes in
financial markets or the macroeconomic outlook that
could have a material impact on a BHC’s risk profile
and financial condition requires the use of updated
scenarios.
The capital plan rule provides that a BHC must
request prior approval of a capital distribution if the
“dollar amount of the capital distribution will exceed
the amount described in the capital plan for which a
non-objection was issued” unless an exception (i.e.,
less than 1 percent of tier 1 capital) is met.44 In par
ticular, a BHC should notify the Federal Reserve as
early as possible before issuing any capital instrument
that counts as regulatory capital and that was not
included in its capital plan. Any capital distribution
associated with the issuance that was not identified in
the capital plan is subject to the requirements of sec
tion 225.8(f) of the capital plan rule (12 CFR
225.8(f)). The Federal Reserve will examine perfor
mance relative to the initial projections and the ratio
nale for the request. Any such request for prior
approval should incorporate a fully updated capital
plan, including relevant FR Y-14 schedules reflecting
updated baseline and supervisory stress scenarios
provided by the Federal Reserve, unless otherwise
directed by the Federal Reserve.
44
See section 225.8(f) of the capital plan rule. 12 CFR 225.8(f).
23
Appendix 1: Supervisory Expectations
for a Capital Adequacy Process
A BHC’s capital adequacy process (CAP) should
adhere to the following principles:
Principle 1: The BHC has a sound risk measurement
and management infrastructure that supports the
identification, measurement, assessment, and control
of all material risks arising from its exposures and
business activities.
• A satisfactory CAP requires (1) a comprehensive
risk identification process, and (2) complete and
accurate measurement and assessment of all mate
rial risks.
• A BHC should measure or assess the full spectrum
of risks that face the BHC, using both quantitative
and qualitative methods, where applicable.
• The BHC should have data capture and retention
systems that allow for the input, use, and storage of
information required for sound risk identification
and measurement and to produce reliable inputs
for assessments of capital adequacy.
• Quantitative processes for measuring risks should
meet supervisory expectations for model effective
ness and be supported by robust model develop
ment, documentation, validation, and overall
model governance practices. Both qualitative and
quantitative processes for assessing risk should be
transparent, repeatable, and reviewable by an inde
pendent party.
• Any identified weaknesses in risk measures used as
inputs to the capital adequacy process should be
documented and reported to relevant parties, with
an assessment of the potential impact of riskmeasurement weaknesses on the reliability of
the CAP.
Principle 2: The BHC has effective processes for
translating risk measures into estimates of potential
losses over a range of stressful scenarios and environ
ments and for aggregating those estimated losses
across the BHC.
• A CAP should include methodologies that generate
estimates of potential losses for all material risk
exposures, one of which should be an enterprisewide stress test using scenario analysis. Methodolo
gies should be complementary, not suffer from
common limitations, and minimize reliance on
common assumptions.
• Using the loss estimation methodologies for its
various risk exposures, a BHC should develop con
sistent and repeatable processes to aggregate its loss
estimates on an enterprise{wide basis.
• A BHC should demonstrate that its loss estimation
tools are developed using sound modeling
approaches, appropriate for the manner in which
they are being employed, and that the most rel
evant limitations are clearly identified, well docu
mented, and appropriately communicated.
• A BHC should recognize that its loss projections
are estimates and should have a good understand
ing of the uncertainty around those estimates,
including the potential margin of error and the sen
sitivity of the estimates to changes in inputs and
key assumptions.
Principle 3: The BHC has a clear definition of avail
able capital resources and an effective process for esti
mating available capital resources (including any pro
jected revenues) over the same range of stressful sce
narios and environments used for estimating losses.
• Management and the board of directors should
understand the loss-absorption capabilities of the
components of the BHC’s capital base, and main
tain projection methodologies for each of the capi
tal components included in relevant capital
adequacy metrics.
• In estimating available capital resources, a BHC
will need to consider not only its current positions
and mix of capital instruments, but also how its
capital resources may evolve over time under vary
ing circumstances and stress scenarios.
24
CCAR Summary Instructions 2013
• As part of a comprehensive enterprise-wide stress
testing program, projections of pre-provision net
revenue (PPNR) should be consistent with balance
sheet and other exposure assumptions used for
related loss estimation. Projections should estimate
all key elements of PPNR, including net interest
income, non-interest income, and non-interest
expense at a level of granularity consistent with
material revenue and expense components.
• A BHC should demonstrate that its capital
resource estimation tools are developed using
sound modeling approaches, appropriate for the
manner in which they are being employed, and that
the most relevant limitations are clearly identified,
well documented, and appropriately
communicated.
• A BHC should recognize that its projections of
capital resources are estimates and should have a
good understanding of the uncertainty around
those estimates, including the potential margin of
error and the sensitivity of the estimates to changes
in inputs and key assumptions.
Principle 4: The BHC has processes for bringing
together estimates of losses and capital resources to
assess the combined impact on capital adequacy in
relation to the BHC’s stated goals for the level and
composition of capital.
• A BHC should have a comprehensive and consis
tently executed process for combining loss,
resource, and balance sheet estimates to assess the
baseline and post-stress impact of those estimates
on capital measures.
• A BHC should calculate and use several capital
measures that represent both leverage and risk at
specified time horizons under both baseline and
stressful conditions, consistent with its capital
policy framework. Measures should include quar
terly estimates for the impact on tier 1 common,
total tier 1, total capital, and tier 1 leverage ratios,
as well as other capital and risk measures useful in
assessing overall capital adequacy.
• The processes for bringing together estimates of
losses and capital resources should ensure that
appropriately stressful conditions over the BHC’s
planning horizon have been incorporated to prop
erly address the institution’s unique vulnerabilities.
• The processes should provide for the presentation
of any information that may have material bearing
on the BHC’s capital adequacy assessment, includ
ing all relevant risks and strategic factors, as well as
key uncertainties and process limitations.
Principle 5: The BHC has a comprehensive capital
policy and robust capital planning practices for estab
lishing capital goals, determining appropriate capital
levels and composition of capital, making decisions
about capital actions, and maintaining capital contin
gency plans.
Capital Policy
• A capital policy is defined as a BHC’s written
assessment of the principles and guidelines used for
capital planning, capital issuance, and usage and
distributions, including internal capital goals; the
quantitative or qualitative guidelines for dividend
and stock repurchases; the strategies for addressing
potential capital shortfalls; and the internal gover
nance procedures around capital policy principles
and guidelines.
• A BHC should establish capital goals aligned with
its risk appetite and risk profile as well as expecta
tions of stakeholders, providing specific targets for
the level and composition of capital. The BHC
should ensure that maintaining its internal capital
goals will allow it to continue its operations under
stressful conditions.
• The capital policy should describe the decision
making processes regarding capital goals, the level
and composition of capital, capital actions, and
capital contingency plans, including an explanation
of the roles and responsibilities of key decision
makers and information and analysis used to make
decisions.
• In its capital policy the BHC should describe its
methods for considering stressful conditions that
appropriately reflect the BHC’s unique vulnerabili
ties, including the choice of stress scenarios. The
policy should discuss how the BHC will address the
potential impact of changes or uncertainties in the
economic, financial, regulatory, or accounting
environment.
• The BHC should outline in its policy specific capi
tal contingency actions it would consider to remedy
any current or prospective deficiencies in its capital
position, including any triggers and escalation pro
cedures. The policy should also include a detailed
explanation of the circumstances in which it will
reduce or suspend a dividend or repurchase pro
gram, or will not execute a previously planned
capital action.
November 9, 2012
• A BHC should establish a minimum frequency
with which its capital plan is reevaluated (at least
annually). In addition, a BHC should review its
capital policy at least annually to ensure it remains
relevant and current.
Capital Planning Practices
• At regular intervals, a BHC should compare the
estimates of baseline and post-stress capital meas
ures (see Principle 4) to the capital goals established
in the capital policy for purposes of informing
capital decisions.
• For capital decisions, consideration should be given
to any information that may have material bearing
on the BHC’s capital adequacy assessment, includ
ing all relevant risks and strategic factors, key
uncertainties, and limitations of the CAP.
• Assessments of capital adequacy and decisions
about capital should be supported by high-quality
data and information, informed by current and rel
evant analysis, and subject to challenge by senior
management and the board of directors.
25
that all aspects of the CAP are functioning as
intended.
• Policies and procedures should ensure a consistent
and repeatable process and provide transparency to
third parties for their understanding of a BHC’s
CAP processes and practices. Policies and proce
dures should be comprehensive, relevant to their
use in the CAP, periodically updated and approved,
and cover the entire CAP and all of its
components.
• Specific to the CAP, a BHC should have internal
controls that ensure the integrity of reported
results and that all material changes to the CAP
and its components are appropriately documented,
reviewed, and approved. A BHC should have con
trols to ensure that management information sys
tems are robust enough to support stress tests with
sufficient flexibility to run ad hoc analysis as
needed.
• Periodically, the BHC should conduct a thorough
assessment of its capital contingency strategies,
including their feasibility under stress, impact, tim
ing, and potential stakeholder reactions.
• Expectations for validation and independent review
for components of the CAP are consistent with
existing supervisory guidance on model risk man
agement (SR letter 11-7). Models should be inde
pendently validated or otherwise reviewed in line
with model risk management and model gover
nance expectations.
• The BHC should regularly review and update its
consideration of stressful conditions, including sce
nario assumptions and variables, to reflect current
market/economic conditions, changing portfolio
risk characteristics, regulatory/accounting changes,
and other relevant developments.
• A BHC should have clear and comprehensive
documentation for all aspects of its CAP, including
its risk measurement and management infrastruc
ture, loss- and resource-estimation methodologies,
the process for making capital decisions, and effi
cacy of control and governance functions.
• A BHC should administer its capital planning
activities and capital decision processes in confor
mance with its policy framework, documenting and
justifying any divergence from policy.
• A BHC’s internal audit should play a strong role in
evaluating the CAP and its components. A full
review of the CAP should be done by audit peri
odically to ensure that as a whole the CAP is func
tioning as expected and in accordance with the
BHC’s policies and procedures. Internal audit
should review the manner in which CAP deficien
cies are identified, tracked, and remediated.
Principle 6: The BHC has robust internal controls
governing capital adequacy process components,
including policies and procedures; change control;
model validation and independent review; compre
hensive documentation; and review by internal audit.
• The internal control framework should encompass
the entire CAP, including the risk measurement
and management systems used to produce input
data, the models and other techniques used to esti
mate loss and resource estimates, the process for
making capital adequacy decisions, and the aggre
gation and reporting framework used to produce
management and board reporting. The set of con
trol functions in place should provide confirmation
Principle 7: The BHC has effective board and senior
management oversight of the CAP, including peri
odic review of the BHC’s risk infrastructure and loss
and resource estimation methodologies; evaluation of
capital goals; assessment of the appropriateness of
stressful scenarios considered; regular review of any
limitations and uncertainties in all aspects of the
CAP; and approval of capital decisions.
• The board of directors should make informed deci
sions on capital adequacy for its BHC by receiving
26
CCAR Summary Instructions 2013
sufficient information detailing the risks the BHC
faces, its exposures and activities, and the impact
that loss and resource estimates may have on its
capital position.
• Information provided to the board about capital
adequacy should be framed against the capital
goals established by the BHC and by obligations to
external stakeholders, and consider capital
adequacy for the BHC with respect to the current
circumstances as well as on a pro forma, post-stress
basis.
• The information the board of directors reviews
should include a representation of key limitations,
assumptions, and uncertainties within the CAP,
enabling the board to have the perspective to effec
tively understand and challenge reported results.
The board should take action when weaknesses in
the CAP are identified, giving full consideration to
the impact of those weaknesses in their capital
decisions.
• Senior management should ensure that all weak
nesses in the CAP are identified, as well as key
assumptions, limitations, and uncertainties, and
evaluate them for materiality (both individually and
collectively). Senior management should also have
remediation plans for any weaknesses affecting
CAP reliability or results.
• Using appropriate information, senior manage
ment should make informed recommendations to
the board of directors about the BHC’s capital,
including capital goals and distribution decisions.
Senior management should include supporting
information to highlight key assumptions, limita
tions, and uncertainties in the CAP that may affect
capital decisions.
• A BHC should appropriately document the key
decisions about capital adequacy—including capi
tal actions—made by the board of directors and
senior management, and describe the information
used to make those decisions.
27
Appendix 2: Disclosure Tables
Table A.1. Dodd-Frank Act Stress Testing Results
Minimum Stressed Tier 1 Common Ratios, Q4 2012 to Q4 2014
Federal Reserve Estimates in the Supervisory Severely Adverse Scenario
The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. The mini
mum stressed ratios (%) are the lowest quarterly ratios from Q4 2012 to Q4 2014 in the supervisory severely adverse scenario.
Bank Holding Company
Ally Financial Inc.
American Express Company
Bank of America Corporation
The Bank of New York Mellon Corporation
BB&T Corporation
Capital One Financial Corporation
Citigroup Inc.
Fifth Third Bancorp
The Goldman Sachs Group, Inc.
JPMorgan Chase & Co.
Keycorp
MetLife, Inc.
Morgan Stanley
The PNC Financial Services Group, Inc.
Regions Financial Corporation
State Street Corporation
SunTrust Banks, Inc.
U.S. Bancorp
Wells Fargo & Co.
Source: Federal Reserve estimates in the supervisory severely adverse scenario.
Stressed Ratios with DFA Stress Testing
Capital Action Assumptions
28
CCAR Summary Instructions 2013
Table A.2. Dodd-Frank Stress Testing Results
Projected Stressed Capital Ratios, Losses, Revenues, Net Income before Taxes,
and Loan Losses by Type of Loan
Federal Reserve Estimates in the Supervisory Severely Adverse Scenario
BHC XXX, Inc.
The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These pro
jections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are
not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the
period Q4 2012 to Q4 2014.
Projected Capital Ratios through Q4 2014 under the Supervisory Severely Adverse Scenario
Actual
Q3 2012
Stressed Capital Ratios
Q4 2014
Minimum
Tier 1 Common Ratio (%)
Tier 1 Capital Ratio (%)
Total Risk-based Capital Ratio (%)
Tier 1 Leverage Ratio (%)
Projected Losses, Revenue, and Net Income Before Taxes
through Q4 2014 under the Supervisory Severely Adverse
Scenario
Billions of
Dollars
Percent of
Average
Assets
Pre-provision Net Revenue1
Other Revenue2
Less
Provisions
Realized Gains/Losses on Securities (AFS/HTM)
Trading and Counterparty Losses3
Other Losses/Gains4
Equals
Net Income Before Taxes
1
2
3
4
Projected Loan Losses by Type of Loans for Q4 2012
through Q4 2014 under the Supervisory Severely Adverse
Scenario
Pre-provision net revenue includes losses from operational risk events,
mortgage put-back expenses, and OREO costs.
Other revenue includes one-time income and (expense) items not included in
pre-provision net revenue.
Trading and counterparty includes mark-to-market losses, changes in credit
valuation adjustments (CVA) and incremental default losses.
Other losses/gains includes projected change in fair value of loans held for sale
and loans held for investment measured under the fair-value option, and
goodwill impairment losses.
Billions of
Dollars
Portfolio Loss
Rates (%)
Loan Losses1
First Lien Mortgages, Domestic
Junior Liens and HELOCs, Domestic
Commercial and Industrial
Commercial Real Estate
Credit Cards
Other Consumer
Other Loans
1
Commercial and industrial loans include small and medium enterprise loans
and corporate cards. Other loans include international real estate loans.
Average loan balances used to calculate portfolio loss rates exclude loans held
for sale and loans held for investment under the fair-value option.
November 9, 2012
Table A.3. Comprehensive Capital Analysis and Review
Minimum Stressed Tier 1 Common Ratios, Q4 2012 to Q4 2014
Federal Reserve Estimates in the Supervisory Severely Adverse Scenario
The capital ratios are calculated using original and adjusted planned capital actions from 2013 annual capital plans. The minimum
stressed ratios (%) are the lowest quarterly ratios from Q4 2012 to Q4 2014 in the supervisory severely adverse scenario. The left col
umn shows the minimum ratios assuming the capital actions originally submitted by each BHC in its January 2013 annual capital
plan. The right column shows the minimum ratios incorporating any adjustments to capital distributions made by the BHCs after
reviewing the Federal Reserve’s stress test projections.
Bank Holding Company
Ally Financial Inc.
American Express Company
Bank of America Corporation
The Bank of New York Mellon Corporation
BB&T Corporation
Capital One Financial Corporation
Citigroup Inc.
Fifth Third Bancorp
The Goldman Sachs Group, Inc.
JPMorgan Chase & Co.
Keycorp
MetLife, Inc.
Morgan Stanley
The PNC Financial Services Group, Inc.
Regions Financial Corporation
State Street Corporation
SunTrust Banks, Inc.
U.S. Bancorp
Wells Fargo & Co.
Source: Federal Reserve estimates in the supervisory severely adverse scenario.
Stressed Ratios with Original
Planned Capital Actions
Stressed Ratios with Adjusted
Planned Capital Actions
29
30
CCAR Summary Instructions 2013
Table A.4. Comprehensive Capital Analysis and Review
Minimum Tier 1 Common Ratios, Q4 2012 to Q4 2014
Federal Reserve Estimates in the Supervisory Severely Adverse Scenario
BHC XXX, Inc.
The capital ratios are calculated using original and adjusted planned capital actions from 2013 annual capital plans. These projections
represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are not fore
casts of capital ratios. The center column shows the minimum ratio assuming the capital actions originally submitted by the BHC in
its January 2013 annual capital plan. The right column shows minimum ratios incorporating any adjustments to capital distributions
made by the BHC after reviewing the Federal Reserve's stress test projections. The two minimum capital ratios presented below are
for the period Q4 2012 to Q4 2014 and do not necessarily occur in the same quarter.
Projected Capital Ratios through Q4 2014 under the Supervisory Severely Adverse Scenario
Tier 1 Common Ratio (%)
Tier 1 Capital Ratio (%)
Total Risk-based Capital Ratio (%)
Tier 1 Leverage Ratio (%)
Actual
Stressed Ratios with
Original Planned Capital
Actions
Stressed Ratios with
Adjusted Planned Capital
Actions
Q3 2012
Minimum
Minimum
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