Federal Reserve Board announces finalized stress testing rules removing noncomplex firms from qualitative aspect of CCAR effective for 2017
As stated by the Board last year, the Board intended to finalize these changes for the 2017 CCAR cycle, which began on January 1, 2017. The scenarios and instructions for the 2017 CCAR cycle will be released by the end of this week.
CCAR evaluates the capital planning processes and capital adequacy of large financial institutions through quantitative and qualitative assessments. The qualitative assessment evaluates the strength of each firm's capital planning process. The quantitative assessment evaluates each's firm's capital adequacy, based on hypothetical scenarios of severe economic and financial market stress. Previously, the Board could object to the annual capital plan of any CCAR firm, based on the quantitative or qualitative findings of the exercise.
The final rule removes the qualitative assessment of CCAR for large and noncomplex firms, which are bank holding companies and U.S. intermediate holding companies of foreign banking organizations with total consolidated assets between \\$50 billion and \\$250 billion, total nonbank assets of less than \\$75 billion, and that are not identified as global systemically important banks (GSIBs). Under the proposal, for a firm to be removed from the qualitative portion of CCAR, it also needed to have less than \\$10 billion in foreign exposure. However, in response to comments, the final rule eliminates that criterion.
Large and noncomplex firms will still be required to meet their capital requirements under stress as part of CCAR's quantitative assessment and will be subject to regular supervisory assessments that examine their capital planning processes. The largest and most complex bank holding companies will remain subject to the qualitative and quantitative components of CCAR, and the Board may continue to object to their capital plans on both qualitative and quantitative grounds.
Like the proposed rule, the final rule reduces certain reporting requirements for large and noncomplex firms. Additionally, the final rule decreases the amount of additional capital a firm can distribute to shareholders in connection with a capital plan that has not been objected to without seeking prior approval from the Board. Previously, a firm could distribute up to an additional 1 percent of its tier 1 capital beyond the amount in its capital plan. The final rule reduces that amount to 0.25 percent of tier 1 capital.
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