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What is the Comprehensive Capital Analysis and Review (CCAR)?

The Comprehensive Capital Analysis and Review is a stress-test regime for large US banks. It aims to establish whether lenders have enough capital to cope with a severe economic shock, and assesses their risk modelling practices.

CCAR is an integral part of the US Federal Reserve’s oversight of risk management and internal controls at these firms. Bank holding companies with consolidated assets of at least $50 billion are required to submit annual capital plans to the Fed describing their internal processes for determining capital adequacy, as well as planned capital distributions and the policies governing them.

Banks must test their capital ratios against three regulator-set scenarios: baseline, adverse, and severely adverse. Banks file annual CCAR submissions to the Fed, containing projected revenues, losses, reserves and capital ratios under the supervisory scenarios as well as internally developed idiosyncratic scenarios from each bank. The Fed usually publishes the results of each year’s CCAR by the end of June.

The regulator evaluates each bank’s CCAR submission by running bank-supplied financial data through its own internal models. The results of the Fed’s models are compared to the results of the bank’s models to determine whether it has met the minimum capital requirement under CCAR.

CCAR is intended to stave off the possibility of a bank failing to maintain adequate capital to withstand economic shocks such as took place during the financial crisis. The Supervisory Capital Assessment Program – the direct precursor to CCAR – was rolled out in early 2009 as part of the Obama administration’s efforts to restore confidence in the US banking system post-crisis.

CCAR runs in parallel with a similar set of stress tests for smaller US lenders, known as DFAST, or the Dodd-Frank Act Stress Test.

See also  European Corporate Due Diligence Act (ECDD) – What is it and what does it mean for you?

Learn more about how Empowered Systems helps with your model risk management by reviewing our Connected Risk module page.

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