Comprehensive Capital Analysis and Review 2020 Summary Instructions - March 2020
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Comprehensive Capital Analysis
and Review 2020
Summary Instructions
March 2020
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEMComprehensive Capital Analysis
and Review 2020
Summary Instructions
March 2020
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEMThis and other Federal Reserve Board reports and publications are available online at
https://www.federalreserve.gov/publications/default.htm.
To order copies of Federal Reserve Board publications offered in print,
see the Board’s Publication Order Form (https://www.federalreserve.gov/files/orderform.pdf)
or contact:
Printing and Fulfillment
Mail Stop K1-120
Board of Governors of the Federal Reserve System
Washington, DC 20551
(ph) 202-452-3245
(fax) 202-728-5886
(email) Publications-BOG@frb.goviii
Contents
Introduction ............................................................................................................................... 1
About this Publication ................................................................................................................. 1
Key Differences between the CCAR 2020 Instructions and the Previous Year’s
Instructions ....................................................................................................................... 1
Overview of CCAR Process ......................................................................................................... 3
Communications Related to CCAR .............................................................................................. 4
Mandatory Elements of a Capital Plan ............................................................................ 5
Assessment of the Expected Uses and Sources of Capital ............................................................ 5
Description of All Capital Actions Assumed over the Planning Horizon ........................................... 8
Description of a Firm’s Process for Assessing Capital Adequacy ................................................... 9
Expected Changes to Business Plans Affecting Capital Adequacy or Funding ............................... 9
Organizing Capital Plan Submissions ......................................................................................... 11
Data Supporting a Capital Plan Submission ............................................................................... 11
CCAR Assessment ................................................................................................................ 13
Qualitative Assessment ............................................................................................................. 13
Supervisory Stress Tests ........................................................................................................... 14
Federal Reserve’s Responses to Planned Capital Actions ........................................................... 15
Disclosure of Supervisory Assessments ..................................................................................... 15
Resubmissions ......................................................................................................................... 15
Execution of Capital Plan and Requests for Additional Distributions ............................................ 16
Appendix A: Scope of CCAR 2020 Qualitative Assessment .................................. 17
Appendix B: Organizing Capital Plan Submissions ................................................... 19
Capital Plan Narrative ................................................................................................................ 19
Capital Plan and FR Y-14A Supporting Documentation ............................................................... 211
Introduction
The Federal Reserve’s annual Comprehensive Capital only to the supervisory stress tests. See table 1 for a
Analysis and Review (CCAR) is an intensive assess- list of firms participating in CCAR 2020 and the ele-
ment of the capital adequacy of the largest U.S. ments of the exercise, explained more herein, to
bank holding companies (BHCs) and U.S. intermedi- which they are subject.
ate holding companies of foreign banking organiza-
tions (IHCs) (collectively, firms) and the practices
that these firms use to assess their capital needs.1 About this Publication
CCAR includes the supervisory and company-run
stress tests that are conducted as a part of the These instructions provide information regarding
Board’s Dodd-Frank Act stress tests (DFAST),2 the CCAR 2020, the stress testing and capital planning
sizing of each firm’s stress capital buffer require- cycle that began on January 1, 2020. Similar to the
ment, and a qualitative assessment of firms’ capital CCAR instructions in previous years, these instruc-
plans. The Federal Reserve expects firms to be able tions provide information regarding
to continue operating and lending to households and • logistics for a firm’s capital plan submission,
businesses, even during times of economic and finan-
cial market stress. • expectations regarding the mandatory elements of
a firm’s capital plan,
These instructions include information about the • the qualitative assessment of a firm’s capital plan,
Federal Reserve’s supervisory stress tests and quali-
tative assessment of capital plans submitted in con- • the supervisory stress tests,
nection with this year’s CCAR exercise (CCAR • the Federal Reserve’s response to a firm’s capital
2020) by (1) firms subject to the Large Institution
plan and planned capital actions, and
Supervision Coordination Committee framework
(LISCC firms); (2) large and complex firms;3 and • public disclosures by the Federal Reserve at the
(3) large and noncomplex firms,4 which are subject end of the exercise.
1
See 12 CFR 225.8 (capital plan rule), 12 CFR 252.153(e)(2)(ii)
(stating that an IHC with total consolidated assets of $100 bil- Key Differences between the CCAR
lion or more must comply with 12 CFR 225.8 in the same man-
ner as a BHC). 2020 Instructions and the Previous
2
Pub. L. No. 111-203, 124 Stat. 1376 (2010); 12 CFR part 252,
subpart E; Pub. L. No. 115-174, 132 Stat. 1296 (2018).
Year’s Instructions
3
Under the Board’s capital plan rule (12 CFR 225.8), large and • Adoption of the stress capital buffer: The Board
complex firms are BHCs and IHCs that, as of December 31,
2019, (1) have $250 billion or more in average total consolidated recently adopted a final rule to establish a firm-
assets, (2) have average total nonbank assets of $75 billion or specific stress capital buffer (SCB) requirement,
more, or (3) are U.S. global systemically important bank hold- whereby the results of the Federal Reserve’s super-
ing companies. LISCC and large and complex firms should
consult the guidance in SR letter 15-18, “Federal Reserve visory stress tests and firms’ planned dividends are
Supervisory Assessment of Capital Planning and Positions for used to determine the size of the capital buffer
LISCC Firms and Large and Complex Firms,” December 18, requirements to which each of the largest banks
2015, https://www.federalreserve.gov/supervisionreg/srletters/
sr1518.htm. are subject.5 The components and mechanics of
4
Large and noncomplex firms are BHCs or IHCs that (1) have
5
average total consolidated assets of between $100 billion and A firm’s SCB requirement is calculated as (1) the difference
$250 billion, (2) have average total nonbank assets of less than between the firm’s starting and minimum projected common
$75 billion, and (3) are not U.S. global systemically important equity tier 1 capital ratios under the severely adverse scenario in
bank holding companies. These firms’ capital planning capa- the supervisory stress test, plus (2) four quarters of planned
bilities are reviewed under a separate process. common stock dividends as a ratio of risk-weighted assets.2 CCAR 2020 Instructions
eign banks (the tailoring rule).6 A number of the
Table 1. Firms participating in CCAR 2020
changes arising from the tailoring rule impact
Subject to Subject to
Subject to
Subject to
stress testing and are noted below.
global
Firm qualitative qualitative counterparty
assessment objection
market
default —Impact upon large and noncomplex firms: Cat-
shock
egory IV firms (as defined in the tailoring rule)
Ally Financial Inc. are subject to the supervisory stress tests every
American Express Company two years. These firms did not participate in the
Bank of America Corporation ✓ ✓ ✓
supervisory stress tests in 2019 and, therefore,
The Bank of New York
Mellon ✓ ✓ are subject to the supervisory stress tests in
Barclays US LLC ✓ ✓ ✓ ✓ 2020.7 Additionally, these firms are no longer
BMO Financial Corporation required to conduct company-run stress tests.8
BNP Paribas USA, Inc.
Capital One Financial —AOCI opt-out’s impact upon stress testing: Under
Corporation ✓
the tailoring rule, an institution that meets the
Citigroup Inc. ✓ ✓ ✓
definition of a Category III or Category IV
Citizens Financial Group, Inc.
Credit Suisse Holdings (USA) ✓ ✓ ✓ ✓ institution as of December 31, 2019, is permit-
DB USA Corporation ✓ ✓ ✓ ✓ ted to make an election to opt-out of AOCI dur-
Discover Financial Services ing the first quarter of 2020 on the applicable
DWS ✓ ✓ reporting form filed as of March 31, 2020. For
Fifth Third Bancorp the purposes of projections in CCAR 2020,
The Goldman Sachs
Group, Inc. ✓ ✓ ✓ these firms should follow the calculation election
HSBC North America they make in the first quarter of 2020.
Holdings Inc. ✓ ✓ ✓
Huntington Bancshares —Capital simplifications: Beginning on April 1,
Incorporated
2020, a firm that is not subject to Category I or
JPMorgan Chase & Co. ✓ ✓ ✓
II standards will be subject to simpler regulatory
KeyCorp
M&T Bank Corporation capital requirements for certain capital deduc-
Morgan Stanley ✓ ✓ ✓ tions and updated risk-weights for those items.
MUFG Americas Holdings For the purposes of CCAR 2020, firms subject
Corporation
to Category III or IV standards should assume
Northern Trust Corporation
The PNC Financial Services
that these capital calculation changes are in
Group, Inc. ✓ effect beginning with the second quarter of the
RBC USA Holdco Corporation planning horizon.
Regions Financial
Corporation —Large and complex firms exempted from
Santander Holdings
USA, Inc.
company-run stress tests in 2021: Category III
State Street Corporation ✓ ✓ firms (as defined in the tailoring rule) must con-
TD Group US Holdings LLC ✓ duct and disclose their company-run stress tests
Truist ✓ in even years, including 2020, instead of annu-
UBS Americas Holdings LLC ✓ ✓ ✓ ✓ ally. These firms are still required to submit their
U.S. Bancorp ✓
Wells Fargo & Company ✓ ✓ ✓ 6
Prudential Standards for Large Bank Holding Companies, Sav-
ings and Loan Holding Companies, and Foreign Banking
Organizations, https://www.govinfo.gov/content/pkg/FR-2019-
11-01/pdf/2019-23662.pdf. The tailoring rule establishes four
the SCB are described in the final rule. As a result risk-based categories for determining the applicability and
stringency of certain prudential standards. Those categories
of certain of those components, the results of the have not yet been incorporated into the capital plan rule but are
company-run and supervisory stress tests will be referred to herein for ease of reference.
7
less comparable this year. See Prudential Standards. These firms are not subject to
CCAR’s qualitative assessment but are required to submit capi-
• Changes as a result of the Board’s tailoring rule: In tal plans to the Federal Reserve annually.
8
October 2019, the Board adopted a final rule that Consistent with the Board’s action in adopting the tailoring
rule, the Federal Reserve extended the deadline for Category IV
established a revised framework for determining firms to submit the Y-14A, except for Schedule C—Regulatory
prudential standards for large domestic and for- Capital Instruments, until April 5, 2021.March 2020 3
post-stress projections to the Board on an required to adopt or had voluntarily adopted a
annual basis in connection with their capital standard or a particular provision of a standard as
plan. of December 31, 2019, that adoption should be
reflected in the FR Y-14A report with Decem-
—Removal of the supervisory adverse scenario: The
ber 31, 2019, as-of dates and in the subsequent
tailoring rule removed the supervisory adverse
projected quarters.
scenario from the Board’s stress test rules, begin-
ning with the 2020 cycle. Accordingly, the num- • No use of the standardized approach for counter-
ber of required supervisory scenarios has been party credit risk in projections for stress testing: To
reduced to two—the supervisory baseline and promote comparability of stress test results across
supervisory severely adverse scenarios. banking organizations, for the 2020 cycle, all bank-
ing organizations would continue to use the cur-
• Incorporation of the current expected credit loss
rent exposure method, or CEM, for CCAR 2020
(CECL) methodology: Beginning in CCAR 2020, projections.
all firms are required to incorporate the impact of
the Financial Accounting Standard Board’s • Phasing out of CCAR’s qualitative objection: Begin-
(FASB) new accounting standard for credit losses, ning with last year’s CCAR cycle, the Board lim-
known as CECL (Topic 326), into their stressed ited its ability to object to firms’ capital plans on
projections. However, the Board will maintain its qualitative grounds to firms recently subject to
current modeling framework for the supervisory CCAR that continue to exhibit material deficien-
stress tests as it relates to CECL through the 2021 cies in capital planning.11 By January 1, 2021, the
CCAR cycle. In addition, the Board will not issue Board’s authority to object to capital plans on
supervisory findings on firms’ stressed estimates of qualitative grounds will be eliminated entirely,
allowances under CECL through the 2021 CCAR other than for any firm receiving a qualitative
cycle.9 objection in CCAR 2020.
• Other changes in accounting standards: The FASB
periodically makes revisions to U.S. generally Overview of CCAR Process
accepted accounting principles (U.S. GAAP).
These changes affect a firm’s financial reporting The Board’s capital plan rule requires the largest and
upon adoption by the firm. The FASB made major most complex firms to submit capital plans to the
revisions to accounting standards associated with Federal Reserve annually.12 Under the capital plan
the recognition and measurement of financial rule, a firm’s capital plan must include a detailed
instruments, revenue recognition, leases, credit description of the firm’s internal processes for
losses, and derivatives and hedging. The effective assessing capital adequacy, the board of directors’
dates for these standards range from fiscal years approved policies governing capital actions, and the
beginning after December 15, 2017, to fiscal years firm’s planned capital actions over a nine-quarter
beginning after December 15, 2020.10 planning horizon. Further, a firm must report to the
Federal Reserve the results of stress tests conducted
Unless otherwise noted herein, for CCAR 2020 a
by the firm under supervisory scenarios provided by
firm should not reflect the adoption of new
the Federal Reserve (supervisory baseline and super-
accounting standards in its projections unless the
visory severely adverse scenarios) and under a base-
firm has already adopted the accounting standard
line scenario and a stress scenario designed by the
for financial reporting purposes. If a firm was
firm (BHC baseline and BHC stress scenarios).
9
See Board of Governors of the Federal Reserve System, “Fed- These stress tests assess the sources and uses of capi-
eral Reserve will maintain current modeling framework for loan tal under baseline and stressed economic and finan-
allowances in its supervisory stress tests through 2021,” press cial market conditions.
release, December 21, 2018, https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20181221b.htm.
10
The lease standard (Topic 842) was effective for annual and Before a firm submits its capital plan to the Federal
interim periods beginning after December 15, 2018. The credit Reserve, the capital plan must be approved by the
losses standard (Topic 326) is effective for fiscal years beginning firm’s board of directors, or a committee thereof.
after December 15, 2019, for Securities and Exchange Commis-
sion (SEC) filers and after December 15, 2020, for non-SEC fil- 11
ers. The derivatives and hedging standard (Topic 815) was effec- In CCAR 2020, Barclays US LLC, Credit Suisse Holdings
tive for fiscal years beginning after December 15, 2018, for pub- (USA), DB USA Corporation, DWS, and UBS Americans
lic business entities (PBE) and after December 15, 2019, for Holdings LLC are subject to the qualitative objection.
12
non-PBE. See the capital plan rule (12 CFR 225.8).4 CCAR 2020 Instructions
For CCAR 2020, capital plans should be submitted to communicate with firms on topics related to the
to the Federal Reserve no later than April 6, 2020. qualitative assessment and the stress tests, send noti-
fications and announcements, and respond to firms’
The Federal Reserve conducts qualitative assess- questions. Firms use the mailboxes to send questions
ments of firms’ capital plans. For purposes of the and communications to the Federal Reserve about
qualitative assessment, the Federal Reserve assesses the qualitative assessment, the supervisory stress
the strength of the firm’s capital planning practices, tests, the capital plan rule, and related requirements.
including the firm’s ability to identify, measure, and
determine the appropriate amount of capital for its When a firm sends a question to the CCAR Com-
risks, and controls and governance supporting capi- munications mailbox or their FR Y-14 point of con-
tal planning.13 The qualitative assessment is tact as part of the Federal Reserve’s CCAR and
informed by a review of the materials each firm pro- FR Y-14 Q&A processes, the firm receives a notifica-
vides in support of its annual capital plan submis- tion with a timeframe in which a response can be
sion. In addition, the Board’s qualitative assessment expected. The Federal Reserve provides a direct
incorporates supervisory assessments that are under- response to the firm as soon as the response is avail-
taken throughout the year. able. In addition, to help ensure that all firms receive
the same information, the Federal Reserve publishes
The qualitative assessments serve as the basis for the such questions and answers on a regular basis (1) on
Federal Reserve’s decision to object to certain firms’ a secure collaboration website accessible by firms
capital plans. Any firms receiving objections to their participating in the qualitative assessment and the
capital plans and the reasons for those objections stress tests, and (2) on the Federal Reserve’s
will be published on or before June 30, 2020. In addi- website.14
tion, CCAR includes the supervisory stress tests
required under the stress test rules. The Board will
publish the results of the supervisory stress tests.
Communications Related to CCAR
The Federal Reserve uses secure CCAR Communi-
cations (info@ccar.frb.org) and Stress Testing Com- 14
See “Comprehensive Capital Analysis and Review (CCAR)
munications (info.stresstesting@frb.org) mailboxes Q&As,” last modified February 5, 2020, https://www
.federalreserve.gov/publications/comprehensive-capital-analysis-
13
See 12 CFR 225.8(f). and-review-qas.htm.5
Mandatory Elements of a Capital Plan
As noted above, a firm must submit its capital plan 3. The firm’s capital policy.
and supporting information, including certain
4. A discussion of any expected changes to the
FR Y-14 schedules, to the Federal Reserve by
firm’s business plan that are likely to have a
April 6, 2020, using a secure collaboration site.
material impact on the firm’s capital adequacy or
liquidity.
The capital plan rule specifies the four mandatory
elements of a capital plan:15
In addition to these mandatory elements, the Board
1. An assessment of the expected uses and sources also requires firms to submit supporting information
of capital over the planning horizon that reflects necessary to facilitate review of a firm’s capital plan
the firm’s size, complexity, risk profile, and scope under the capital plan rule and in accordance with
of operations, assuming both expected and the FR Y-14 Instructions, including appendix A to
stressful conditions, including the following: the FR Y-14A.16
a. Estimates of projected revenues, losses,
The remainder of this section provides instructions
reserves, and pro forma capital levels—
and guidance for the contents and format that firms
including any minimum regulatory capital
should use when submitting their capital plans and
ratios (e.g., tier 1 leverage, tier 1 risk-based,
any supporting information. In a continuing effort to
common equity tier 1 risk-based, and total
reduce burden associated with the submission of
risk-based capital ratios, and supplementary
supporting documentation related to CCAR’s quali-
leverage ratio, as applicable) and any addi-
tative assessment, subject firms are required to sub-
tional capital measures deemed relevant by
mit documentation only for areas in scope for this
the firm—over the planning horizon under
year’s exercise, as set forth in the scoping letter sent
baseline conditions and under a range of
to each of these firms in December 2019 and sum-
stressed scenarios. These must include any
marized in appendix A.
scenarios provided by the Federal Reserve
and at least one baseline and one stress sce-
nario developed by the firm that is appropri- Assessment of the Expected Uses and
ate to its business model and activities.
Sources of Capital
b. A discussion of how the firm will maintain
all minimum regulatory capital ratios under A firm must include an assessment of the expected
expected conditions and the required stressed uses and sources of capital over the planning horizon
scenarios. that reflects the firm’s size, complexity, risk profile,
c. A discussion of the results of the stress tests and scope of operations, assuming both expected
required by law or regulation and an expla- and stressful conditions.17 For the purposes of
nation of how the capital plan takes these CCAR, firms are required to submit capital plans
results into account. that are supported by their capital planning pro-
cesses and post-stress results for each of the nine
d. A description of all planned capital actions quarters under the required scenarios.
by the firm over the planning horizon.
2. A detailed description of the firm’s process for
assessing capital adequacy.
16
See 12 CFR 225.8(e)(3).
15 17
See 12 CFR 225.8(e)(2). See 12 CFR 225.8(e)(2)(i).6 CCAR 2020 Instructions
The Federal Reserve’s evaluation of a firm’s capital tests required by law or regulation and an explana-
plan focuses on whether the firm has adequate pro- tion of how a firm’s capital plan takes these results
cesses for identifying the full range of relevant risks, into account.19 Under the stress test rules, firms are
given the firm’s unique exposures and business mix, required to conduct those tests using two supervisory
and whether the firm appropriately assesses the scenarios provided by the Federal Reserve (supervi-
impact of those risks on its financial results and sory baseline and supervisory severely adverse sce-
capital needs. narios).20 In addition, the capital plan rule requires
firms to use at least one stressed scenario and a base-
Estimates of Projected Revenues, Losses, line scenario developed by them.21 Firms must
Reserves, and Pro Forma Capital Levels include these four scenarios:
1. Supervisory baseline: a baseline scenario provided
For the purposes of CCAR, each firm must submit by the Federal Reserve under the stress test rules
its capital plan supported by its internal capital plan-
ning process and include post-stress results under the 2. Supervisory severely adverse: a severely adverse
various scenarios. scenario provided by the Federal Reserve under
the stress test rules
In conducting its stress tests, a firm must consider 3. BHC baseline: a firm{defined baseline scenario
the regulatory capital rules in effect for each quarter
of the planning horizon (other than the advanced 4. BHC stress: at least one firm{defined stress
approaches), including the minimum regulatory capi- scenario
tal ratios and the applicable transition provisions.18
Unless noted otherwise in the FR Y-14A Instructions,
A firm should clearly identify and report to the Fed- a firm’s estimates of its projected revenues, losses,
eral Reserve any aspects of its portfolios and expo- reserves, and pro forma capital levels based on data as
sures that are not adequately captured in the of December 31, 2019, begin in the first quarter of
FR Y-14 schedules and that the firm believes are 2020 (January 1, 2020) and conclude at the end of the
material to loss estimates for its portfolios. In addi- first quarter of 2022 (March 31, 2022).
tion, the firm should be able to explain why the
FR Y-14 reports are not accurately capturing such The supervisory baseline and severely adverse sce-
exposures. Some examples may include portfolios narios are not forecasts of the expected outcomes.
that have contractual loss-mitigation arrangements They are hypothetical scenarios to be used to assess
or contingent risks from intraday exposures that are the strength and resilience of a firm’s capital in base-
not effectively captured by the FR Y-14 schedules. line and stressed economic and financial market
The firm should fully describe its estimate of the environments. Under the stress test rules, the Board
potential impact of such items on financial perfor- is required to provide firms with a description of the
mance and loss estimates under the baseline and supervisory macroeconomic scenarios no later than
stressed scenarios. A firm should incorporate and February 15 of each calendar year.22 While supervi-
document any pertinent details that would affect the sory macroeconomic scenarios are applied to all
production and results of these estimates. firms that are part of CCAR, the Board may apply
additional scenarios or scenario components to all or
Firms should refer to the FR Y-14A Instructions for a subset of the firms in CCAR.23 The Board pub-
further information on the required data and sup- lished descriptions of the supervisory scenarios and
porting documentation for submitting regulatory additional scenario components on February 6,
capital projections. 2020.24
Discussion of Stress Test Results 19
See 12 CFR 225.8(e)(2).
20
Conducted by Firms See 12 CFR part 252, subpart F.
21
A firm may use the same baseline scenario as the supervisory
baseline scenario if the firm determines the supervisory base-
The capital plan rule requires a firm to include in its line scenario appropriately represents its view of the most likely
capital plan a discussion of the results of any stress outlook for the risk factors salient to the firm.
22
See 12 CFR 252.44(b) and 12 CFR 252.54(b).
23
18
See Amendments to the Capital Plan and Stress Test Rules, See 12 CFR 252.44(b).
24
80 Fed. Reg. 75419 (December 2, 2015), https://www.govinfo See Board of Governors of the Federal Reserve System, 2020
.gov/content/pkg/FR-2015-12-02/pdf/FR-2015-12-02.pdf. Supervisory Scenarios for Annual Stress Tests Required under theMarch 2020 7
Global Market Shock losses from such positions do not exceed losses
resulting from the higher of either the losses stem-
Firms with significant trading activity must include ming from the global market shock or those esti-
in their company-run stress tests under the supervi- mated under the macroeconomic scenario. However,
sory severely adverse scenario a component that the full effect of the global market shock must be
assesses potential losses associated with trading posi- taken through net income in the first quarter of the
tions, private equity positions, and counterparty planning horizon, which will include the as-of date
exposures (global market shock). The Board modi- for the global market shock.
fied the threshold for the global market shock com-
ponent in 2017 to apply to any firm that is subject to If a firm subject to the global market shock makes
supervisory stress tests and that has aggregate trad- any adjustment to account for identical positions,
ing assets and liabilities of $50 billion or more, or then that firm must demonstrate that the losses gen-
aggregate trading assets and liabilities equal to erated under the macroeconomic scenario are on
10 percent or more of total consolidated assets, and identical positions to those subject to the global mar-
is not a large and noncomplex firm.25 ket shock, break out each of the adjustments as a
separate component of pre-provision net revenue
Firms subject to the global market shock in CCAR (PPNR), and describe the rationale behind any such
2020 must apply the shock as of a specified point in adjustments.
time, which will result in instantaneous losses and a
reduction in capital. These losses and related capital Counterparty Default Scenario Component
impact will be included in projections for the first
quarter of the planning horizon. The as-of date for Firms with substantial trading or processing and
the global market shock is October 18, 2019. custodian operations are required to incorporate a
counterparty default scenario component into their
The global market shock is an add-on component of supervisory severely adverse stress scenario.27
the supervisory severely adverse scenario that is
exogenous to the macroeconomic and financial mar- Firms subject to the counterparty default scenario
ket environment specified in that scenario. As a component in CCAR 2020 are required to estimate
result, losses from the global market shock should be and report the potential losses and related effects on
viewed as an addition to the estimates of losses capital associated with the instantaneous and unex-
under the macroeconomic scenario.26 Firms subject pected default of the counterparty that would gener-
to the global market shock should not assume for the ate the largest losses across its derivatives and securi-
purposes of calculating post-stress capital ratios that ties financing transactions, including securities lend-
there is a decline in portfolio positions or risk- ing and repurchase or reverse repurchase agreement
weighted assets due to losses from the global market activities. The largest counterparty of each firm is
shock, except in the case noted below. determined by net stressed losses, which is estimated
by revaluing exposures and collateral using the global
If a firm subject to the global market shock can market shock scenario.
demonstrate that its loss-estimation methodology
stresses identical positions under both the global The as-of date for the counterparty default scenario
market shock and the supervisory macroeconomic component is October 18, 2019, the same date as the
scenario, that firm may assume that the combined global market shock.
Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule
(Washington: Board of Governors, February 2020), https://
Similar to the global market shock, the counterparty
www.federalreserve.gov/newsevents/pressreleases/files/ default scenario component is an add-on component
bcreg20200206a1.pdf. to the macroeconomic and financial market sce-
25
See Agency Information Collection Activities: Announcement narios specified in the Federal Reserve’s supervisory
of Board Approval Under Delegated Authority and Submission
to OMB, 82 Fed. Reg. 59608 (December 15, 2017), https://www severely adverse scenario, and, therefore, losses asso-
.govinfo.gov/app/details/FR-2017-12-15/2017-26960. ciated with this component should be viewed as an
26
Firms should not report changes in value of the mortgage- addition to the estimates of losses under the macro-
servicing rights (MSRs) assets or hedges as trading losses economic scenarios.
resulting from the global market shock. Therefore, if derivative
or other MSRs hedges are placed in the trading book for
FR Y-9C purposes, these hedges should not be stressed with the
27
global market shock. See 12 CFR 252.44(b).8 CCAR 2020 Instructions
BHC Scenarios a gross or net basis.31 Further detail is provided in
“Execution of Capital Plan and Requests for Addi-
To gain a deeper understanding of a firm’s unique tional Distributions” below.
vulnerabilities, the capital plan rule requires each
firm to design an internal stress scenario that is Capital Action Assumptions
appropriate to its business activities and exposures,
including any expected material changes therein over Firms must incorporate assumptions about capital
the nine-quarter horizon. As part of its annual capi- actions over the planning horizon into their
tal plan submission, each firm must submit the company-run stress tests. The types of capital actions
results of its stress tests based on at least one stress that a firm must incorporate into its company-run
scenario developed by that firm and on a firm base- stress tests under various scenarios are defined as
line scenario, which reflect the firm’s unique risk follows:
exposures and business activities.
• Planned capital actions: a firm’s planned capital
A firm may use the same baseline scenario as the actions under the BHC baseline scenario
supervisory baseline scenario if the firm determines • Alternative capital actions: a firm’s assumed capital
the supervisory baseline scenario appropriately rep- actions under the BHC stress scenario
resents its view of the most likely outlook for the risk
factors salient to the firm. • Company-run stress test capital actions: capital
action assumptions as required under the stress
Firms should consult SR letter 15-18, and, in par- test rules32
ticular, part III.E and appendix G, for detailed guid-
Planned Capital Actions
ance on developing internal scenarios that focus on
the specific vulnerabilities of the firm’s risk profile
and operations.28 As part of the capital plan submission, except in the
case of the BHC stress scenario, firms should calcu-
late post-stress capital ratios using their planned
Description of All Capital Actions capital actions over the planning horizon that are
described in the BHC baseline scenario.
Assumed over the Planning Horizon
With respect to the planned capital actions that are
The Federal Reserve considers the firm’s description
described in the capital plan:
of all planned capital actions over the planning hori-
zon, including both capital issuances and capital dis- • For the initial quarter of the planning horizon, the
tributions. Under the capital plan rule, a capital firm must take into account the actual capital
action is any issuance of a debt or equity capital actions taken during that quarter.
instrument, any capital distribution, and any similar
• For the second quarter of the planning horizon
action that the Federal Reserve determines could
(i.e., the second quarter of 2020), a firm’s capital
affect a firm’s consolidated capital.29 A capital distri-
distributions should be consistent with those
bution is a redemption or repurchase of any debt or
already included in the capital plan from the prior
equity capital instrument, a payment of common or
year and not objected to by the Federal Reserve for
preferred stock dividends, a payment that may be
that quarter.
temporarily or permanently suspended by the issuer
on any instrument that is eligible for inclusion in the • For each of the third through ninth quarters of the
numerator of any minimum regulatory capital ratio, planning horizon, the firm must include any
and any similar transaction that the Board deter- planned capital actions.
mines to be in substance a distribution of capital.30
For scenarios other than the BHC baseline scenario,
Under certain circumstances, a firm must request a firm’s capital action may depend on projections of
approval from the Board to make capital distribu- other items, particularly share prices. To ensure con-
tions that exceed those included in its capital plan on sistency, a firm should include the following assump-
tions when projecting its capital actions:
28
See SR letter 15-18.
29 31
See 12 CFR 225.8(d)(4). See 12 CFR 225.8(g).
30 32
See 12 CFR 225.8(d)(5). See 12 CFR 252.56(b).March 2020 9
• Assume that the dollar value of dividends, repur- fourth through seventh quarters of the planning
chases, and redemptions of capital instruments do horizon as a percentage of risk-weighted assets.
not vary from the amount in the BHC baseline
scenario. In order to calculate this value, the Federal Reserve
will use a firm’s planned common dividends in the
• Assume that the dollar value of the issuance of
BHC baseline scenario. The dividend add-on will
capital instruments does not vary by scenario from
exclude planned dividends to the extent that these
the amount in the BHC baseline scenario unless
dividends are associated with a material business
the scenario directly impacts shareholder’s equity
plan change.
or consideration paid in connection with a planned
merger or acquisition. As planned dividends will serve as an input into a
firm’s SCB, this part of each firm’s capital plan will
Alternative Capital Actions
receive particularly close scrutiny.
In calculating post-stress capital ratios that are
described in the BHC stress scenario, a firm should Description of a Firm’s Process for
use the capital actions it would expect to take if the
stress scenario were realized. These alternative capital Assessing Capital Adequacy
actions should be consistent with the firm’s estab-
lished capital policies. A firm’s description of its process for assessing capi-
tal adequacy is an important component of its capi-
Company-Run Stress Test Capital Action tal plan. As discussed in SR letter 15-18 and the capi-
Assumptions tal plan rule, a firm’s capital planning process should
have as its foundation a full understanding of the
For stressed projections under the stress test rules, risks arising across all parts of the firm from its
firms should follow the capital action assumptions exposures and business activities, as well as scenario-
set forth in the stress test rules as of the April 6, based stress testing analytics, to ensure that it holds
2020, submission date of their capital plans. For the sufficient capital corresponding to those risks to
supervisory stress tests, the Federal Reserve will use maintain operations across the planning horizon.
the capital action assumptions set forth in the SCB
rule. The results of the company-run and supervi- The detailed description of a firm’s capital planning
sory stress tests will be less comparable as a result of process should include a discussion of how, under
these different capital actions. stressful conditions, that firm will meet supervisory
expectations for maintaining capital commensurate
Organization of Description of Capital with its risks, taking into account minimum regula-
Actions tory capital ratios and its internal capital goals.
Firms should primarily refer to SR letter 15-18 for
A firm should align the description of its planned additional detail on the supervisory expectations for
capital actions to the actions submitted on the the capital planning process.
FR Y-14A Summary Schedule that are described in
the BHC baseline scenario and on the FR Y-14A Expected Changes to Business Plans
Regulatory Capital Instruments Schedule, and orga-
nize the description of the planned capital actions in Affecting Capital Adequacy or
a manner that permits comparison with the sched- Funding
ules. One method of organization would be a table,
such as table 2, which presents the capital actions by Each firm should include in its capital plan a discus-
type of capital instrument over the quarterly path. sion of any expected changes to the firm’s business
plan that are likely to have a material impact on the
Dividend Add-On firm’s capital adequacy. Examples of changes to a
business plan that may have a material impact could
The SCB rule specifies that part of a firm’s SCB include a planned merger, acquisition, or divestiture;
requirement will be composed of a dividend add-on changes in key business strategies; or significant
equal to the sum of the dollar amount of the firm’s investments. For projections under the BHC sce-
planned common stock dividends for each of the narios, a firm should include all planned mergers,10 CCAR 2020 Instructions
Table 2. Summary of planned capital actions, CCAR 2020
Item 2020:Q1 2020:Q2 2020:Q3 2020:Q4 2021:Q1 2021:Q2 2021:Q3 2021:Q4 2021:Q1 9-quarter
Dividends
Common dividends/share ($) n/a
Common dividends
Preferred dividends
Repurchases and redemptions
Common stock issuance
Common stock repurchase (gross)
Common stock repurchase (net)
Common stock - employee stock
compensation issuance
Common stock - employee stock
compensation repurchase (gross)
Common stock - employee stock
compensation repurchase (net)
Preferred stock issuance
Preferred stock repurchase (gross)
Preferred stock repurchase (net)
TruPS issuance
TruPS repurchase (gross)
TruPS repurchase (net)
Subordinated debt issuance
Subordinated debt repurchase (gross)
Subordinated debt repurchase (net)
Other capital instruments issuance
(gross)
Other capital instruments repurchase
(gross)
Other capital instruments repurchase
(net)
Millions of dollars
n/a Not applicable.
TruPS Trust preferred securities.
acquisitions, and divestitures that represent the reflect material changes to the firm’s business plan in
firm’s current view of the most likely outlook over its FR Y-14A Summary and Business Plan Changes
the planning horizon under the given scenario. Schedule F.1 and provide relevant supporting docu-
mentation. FR Y-14A Schedule F.2, Pro Forma
In the discussion of the business plan change, the Combining Balance Sheet Mergers and Material
firm should consider in its capital plan the effects of Acquisitions, must only be completed if a firm proj-
these expected changes and any potential adverse ects a material merger or acquisition. A firm must
consequences in the event the actions do not result in reflect the impact of the scenario on any issuance of
the planned changes (e.g., a merger plan falls capital or increase in shareholder’s equity associated
through, a change in business strategy is not with a business plan change. Upon reviewing this
achieved, or the firm suffers a loss on the significant information, the Federal Reserve may request addi-
planned investment).33 In addition, a firm should
data. The Federal Reserve may request additional information
33
If a firm’s December 31, 2019, FR Y-9C is not reflective of its about any description of material changes to the starting data,
risk profile and business activities, the firm should provide a including incremental impacts on the firm’s starting balance
description of the business plan changes that affect its starting sheet, income statement, capital, and risk-weighted assets.March 2020 11
tional information about the firm’s business plan FR Y-14 Data Submission
change.34
In general, firms are required to report all data ele-
ments in the FR Y-14 schedules; however, certain
Organizing Capital Plan Submissions schedules, worksheets, or data elements may be
optional for a firm. The instructions for the indi-
Appendix B provides a suggested outline for both the vidual FR Y-14A, FR Y-14Q, and FR Y-14M sched-
capital plan narrative and supporting information, as ules provide details about how to determine whether
well as defining the submission components and a firm must submit a specific schedule, worksheet, or
mapping them to the mandatory elements in the data element.
capital plan rule and the FR Y-14A Instructions.
Firms are required to report FR Y-14 data that are
In December 2019, the Federal Reserve issued a let- materially accurate. Firms may be asked to resubmit
ter to firms notifying them of the planned scope of FR Y-14 data after the initial due date as specified in
CCAR 2020. In an effort to reduce burden associ- the associated report instructions should errors or
ated with the submission of supporting documenta- omissions be identified by the Federal Reserve. Due
tion, firms will only be required to submit documen- dates are specified in the FR Y-14Q and FR Y-14M
tation related to the elements in scope for this year’s General Instructions, which are available on the Fed-
exercise. eral Reserve Board’s website.37 FR Y-14A schedules,
where applicable, are due by April 6, 2020. For sub-
missions with a December 31, 2019, as-of date, vol-
Data Supporting a Capital Plan untary data resubmissions received after the initial
Submission data submission will be considered on a case-by-case
basis for inclusion in the assessment. (See “Supervi-
In conducting its assessment of a firm’s capital plan, sory Post-Stress Capital Analysis” for the treatment
the Federal Reserve relies on the completeness and of unresolved data issues.)
accuracy of information provided by the firm. A
firm’s internal controls around data integrity are Under the capital plan rule, failure to submit com-
critical to assure the quality of the capital planning plete data to the Federal Reserve in a timely manner
process. Firms should refer to appendix E of SR let- may be indicative of weaknesses in a firm’s capital
ter 15-18 for more information on the Federal planning process and could result in supervisory
Reserve’s expectations for internal audit. action. A firm’s inability to provide required data by
the due dates may affect supervisory estimates of
Firms are expected to have procedures in place for losses, PPNR, risk-weighted assets, and capital for
meeting the accuracy requirements of the FR Y-14A, the firm and may affect the Federal Reserve’s assess-
FR Y-14Q, and FR Y-14M forms and should be able ment of the internal risk-measurement and risk-
to evaluate the results of such procedures.35 management practices supporting a firm’s capital
planning process.
LISCC firms must complete the attestation for
FR Y-14A, FR Y-14Q, and FR Y-14M reports with FR Y-14A Summary Schedule Capital
December 31, 2019, as-of dates.36 For these reports, Worksheets
LISCC firms are required to attest to conformance
with the forms’ instructions, the material correctness Firms must complete capital worksheets on the
of the actual data as of that date, and the effective- FR Y-14A Summary Schedule to report their projec-
ness of internal controls throughout the year. tions of capital components, risk-weighted assets,
and capital ratios under each of the four scenarios
described above.
34
Although firms will include business plan changes in their
company-run stress tests per the current stress test rules, the With respect to a firm’s projections under the super-
Federal Reserve will not incorporate business plan changes into
the supervisory stress test results. As a result, the results of the visory scenarios, the firm must calculate two sets of
company-run and supervisory stress tests will be less pro forma capital ratios and complete (1) the Capi-
comparable.
35
See SR letter 15-18, appendix E. 37
See “Report Forms,” last modified August 12, 2011, https://
36
See 82 Fed. Reg. 59608 (December 15, 2017). www.federalreserve.gov/apps/reportforms/default.aspx.12 CCAR 2020 Instructions
tal—CCAR worksheet (FR Y{14A Schedule A.1.d.1)
Table 3. Capital worksheet requirements
using the firm’s planned capital actions in the BHC
baseline scenario, and (2) the Capital—DFAST Scenario
CCAR capital DFAST capital
worksheet (FR Y{14A Schedule A.1.d.2) using the worksheet worksheet
prescribed assumptions about capital actions under Planned capital
the stress test rules. BHC baseline1 actions n/a
Planned capital DFA stress test
Supervisory baseline1 actions capital actions
For the firm-developed scenarios, a firm should Alternative capital
complete only the Capital—CCAR worksheet BHC stress actions n/a
Planned capital DFA stress test
(FR Y{14A Schedule A.1.d.1) and include projec- Supervisory severely adverse actions capital actions
tions using the firm’s expected capital actions as
1
If a firm determines the supervisory baseline scenario to be appropriate for its
deemed appropriate by the firm for that scenario and own BHC baseline, the firm may submit identical FR Y-14A Summary
in accordance with the firm’s capital policies. schedules for the BHC baseline and supervisory baseline, but would not be
required to submit a DFAST capital worksheet for the BHC baseline.
n/a Not applicable.
Table 3 illustrates the capital actions used for each
scenario’s FR Y-14A Schedule.13
CCAR Assessment
The Federal Reserve’s CCAR assessment consists of helps to highlight key weaknesses in a firm’s internal
a review of firms’ capital plan and the generation of processes that can result in additional supervisory
supervisory stress test estimates, using internally scrutiny throughout the year.
developed supervisory models and assumptions with
firms’ FR Y-14 filings and supporting information.” During the qualitative assessment, supervisors assign
38
ratings to each of the six areas of capital planning
noted above. The ratings, which indicate the extent to
which a firm’s capital planning practices meet super-
Qualitative Assessment visory expectations, are used to determine the nature
and severity of supervisory feedback. For firms sub-
In conducting the qualitative assessment, the Federal ject to the qualitative objection, decisions to object
Reserve evaluates firms’ capital planning practices, or not object to a firm’s capital plan for qualitative
focusing on six areas of capital planning—namely, reasons are based on an absolute assessment of the
governance, risk management, internal controls, firm’s practices relative to standards in the capital
capital policies, incorporating stressful conditions plan rule.
and events, and estimating impact on capital posi-
tions. The supervisors engaged in the qualitative As the Federal Reserve reviews a firm’s capital plan,
assessment include dedicated supervisory teams that it will consider, among other factors, the following:
provide a firm-specific assessment and horizontal
evaluation teams focusing on cross-firm assessments • Whether the firm has material unresolved supervi-
of capital planning processes. Horizontal evaluation sory issues, including but not limited to issues
teams are multidisciplinary and include financial associated with its capital adequacy process.
analysts, accounting and legal experts, economists, • Whether the assumptions and analyses underlying
risk-management specialists, financial risk modelers, the firm’s capital plan, or the firm’s methodologies
and regulatory capital analysts. for reviewing its capital adequacy process, are not
reasonable or appropriate.
In addition to the assessment carried out subsequent
to the submission of the required annual capital • Whether the firm’s capital planning process or pro-
plans, CCAR qualitative assessments are informed posed capital distributions otherwise constitute an
by supervisory activities that are conducted through- unsafe or unsound practice or would violate any
out the year to assess a firm’s practices and processes law, regulation, Board order, directive, or any con-
used, in part, to support its capital planning. These dition imposed by, or written agreement with, the
supervisory activities include reviews that focus on Board or the appropriate Federal Reserve Bank.
risk management, internal controls, audit, and cor-
porate governance and the monitoring of the firm’s Material Unresolved Supervisory Issues
progress toward addressing identified weaknesses in
capital planning processes and meeting supervisory The Federal Reserve’s qualitative assessment criti-
expectations. The CCAR qualitative assessment cally evaluates supervisory issues—identified through
CCAR and year-round supervisory assessments—
38
See Board of Governors of the Federal Reserve System, Dodd- related to identification, measurement, and manage-
Frank Act Stress Test 2018: Supervisory Stress Test Methodol- ment of firms’ material risks and controls and gover-
ogy and Results (Washington: Board of Governors, June 2018), nance around those activities. Sound capital plan-
https://www.federalreserve.gov/publications/files/2018-dfast-
methodology-results-20180621.pdf (2018 DFAST Methodology ning requires a strong foundation of risk manage-
and Results). ment, internal controls, and governance.14 CCAR 2020 Instructions
The Federal Reserve may object to a firm’s capital Controls and Governance over the Capital
plan if the firm has material unresolved supervisory Planning Process
issues, including but not limited to issues associated
with its capital adequacy process that A firm’s internal controls over its capital planning
• are severe in nature (e.g., relate to the fundamental process should help to ensure the effectiveness of the
firm’s capital planning. If a firm has weak internal
ability of a firm to identify, measure, and monitor
controls, the reliability and credibility of the firm’s
its risks or to determine its capital needs under
capital planning process and any outputs from the
stressful conditions);
process are called into question.
• have proven to be pervasive in nature (e.g., not nec-
essarily confined to an individual function, busi- For example, the Federal Reserve may object to a
ness line, or assessment area); or capital plan if a firm has material or pervasive defi-
ciencies in
• have remained outstanding for a considerable
period of time (e.g., at least one supervisory assess- • internal controls around key elements of the firm’s
ment cycle), with limited progress made in address- capital planning processes, including controls
ing the root causes of the identified deficiencies.39 around the processes used to develop and indepen-
dently validate key assumptions, models, and other
Assumptions and Analysis Underlying the approaches used as part of the firm’s forward-
Capital Plan looking capital adequacy assessment;
• the execution of internal audits of processes sup-
A forward-looking assessment of capital adequacy porting the firm’s capital planning;
under a range of stressful scenarios is a key input to
• controls around the data and information technol-
a firm’s capital plan. In order to support the firm’s
ogy infrastructure supporting the firm’s capital
capital planning processes, the capital adequacy
adequacy assessment, including those relating to
assessment process should evidence a clear link
regulatory reporting; or
between stress scenarios and the firm’s material
risks; sound approaches used to quantify the effect • senior management oversight of capital planning
of the scenarios on the firm’s financial performance processes.41
and capital positions; critical assessments of the
assumptions, analysis, and output of its stress test-
ing; and strong controls and governance surrounding Supervisory Stress Tests
the capital planning process.
The Federal Reserve’s supervisory stress tests, con-
The Federal Reserve may object to a firm’s capital ducted under the stress test rules, estimate losses, rev-
plan if the firm has material or pervasive deficiencies enues, balances, risk-weighted assets, and capital.42
in areas such as The supervisory projections are conducted using two
hypothetical macroeconomic and financial market
• comprehensive, firm-wide identification, capture, scenarios developed by the Federal Reserve: (1) the
and measurement of risks, including the identifica- supervisory baseline, and (2) supervisory severely
tion of risks that may only emerge or become adverse scenarios.
apparent under stress; or
• assumptions and analysis designed to address As described in the final SCB rule, the Board will use
the results of the supervisory stress tests to size a
known data or model weaknesses; to account for
firm’s SCB requirement.
the potential effect of a given stress event on strate-
gic or other management actions; or to support
In connection with the supervisory stress tests, the
elements of the forward-looking assessment that
Federal Reserve may use data and information pro-
remain difficult to model and, therefore, require
vided in the FR Y-14 regulatory reports with Decem-
the application of well-governed business
ber 31, 2019, as-of dates. Firms should review the
judgment.40
41
See 12 CFR 225.8(f)(2)(ii)(B).
42
39
For more details on the methodology of the Federal Reserve’s
See 12 CFR 225.8(f)(2)(ii)(B)(2). supervisory stress tests, see 2018 DFAST Methodology and
40
See 12 CFR 225.8(f)(2)(ii)(B). Results.You can also read
