OREANDA-NEWS. Proposed changes to the US Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process would further bifurcate the rules governing large banks with greater than $250bn in assets from big regional banks, says Fitch Ratings. The proposals are in line with earlier signals that the Fed remains focused on large banks' capital requirements while also exploring means to ease the process for smaller firms that fall under CCAR.

Among the most significant changes is to exempt banks with less than $250bn in assets from the qualitative capital plan objection portion of the CCAR stress test. These banks would continue to face a qualitative review conducted outside of the CCAR process. Currently, all banks above $50bn in assets are required to take part in the CCAR process, which includes both a qualitative examination of risk management processes and a quantitative component that assesses projected capital ratios.

Eliminating the qualitative assessment as part of CCAR for the more domestically focused large, regional banks would mark a major split in the rules by bank category as banks with assets greater than $250bn would face tougher requirements. Banks under the $250bn asset threshold would also face lower reporting requirements, further reducing their regulatory burden.

A separate proposed change to the CCAR process would expand the range of dates available for the regulator to choose from in the global market shock component in its stress test scenario for bank holding companies with significant trading activity. A wider date range may allow the Fed to get a better picture of trading exposures than under the current system because banks would not be able to manage their exposures for a specific date. This would affect most of the eight G-SIBs but not the large regionals.

The Fed is also proposing a change to its "de minimis exception threshold" for all bank holding companies. CCAR places hard limits on capital distributions once they have been approved. There is currently a limited exception after the bank has received a non-objection in the event that a bank is 'well-capitalized' and if the additional distribution is under a certain maximum. A proposed change would limit this exception by establishing a black-out period and reducing the maximum allowable additional distribution from 1% to 0.25%. This change would likely have a more significant effect on pay-outs from the eight US global systemically important banks (G-SIBs) and those banks over $250bn in assets.

Federal Reserve Governor Tarullo spoke about additional changes to CCAR earlier this week in a speech that went beyond the formal notice published this week. Notably, he outlined an additional capital buffer - the Stress Capital Buffer - for G-SIBs that could force large banks to maintain higher levels of capital and greatly constrain their ability to make capital distributions.