CCAR and DFAST Compliance
What is CCAR? What is Dodd Frank Annual Stress Testing?
The Comprehensive Capital Analysis and Review (CCAR) is an annual exercise by the Federal Reserve to ensure that institutions have well-defined and forward-looking capital planning processes that account for their unique risks and sufficient capital to continue operations through times of economic and financial stress.
As part of the CCAR, the Federal Reserve evaluates capital adequacy, internal capital adequacy assessment processes, and plans to make capital distributions, such as dividend payments or stock repurchases. The CCAR includes a supervisory stress test to support the Federal Reserve's analysis of the adequacy of capital. Boards of directors are required each year to review and approve capital plans before submitting them to the Federal Reserve.
Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires all financial institutions with total consolidated assets of more than $10 billion to conduct annual stress tests. On October 9, 2012, the OCC, FDIC and FRB published its final annual stress test rules, which set out definitions and rules for scope of application, scenarios, reporting, and disclosure. The results of the company-run stress tests provide the regulators with forward-looking information that will be used in bank supervision and will assist the agencies in assessing the company’s risk profile and capital adequacy. These stress test results are also expected to support ongoing improvement in a covered institution’s stress testing practices with respect to its internal assessments of capital adequacy and overall capital planning.
Who is impacted by the CCAR exercises?
Generally, bank holding companies with at least $50B in total consolidated assets with tier 1 material portfolios - auto, mortgage, card, and commercial. Currently, this includes the 30 largest bank holding companies.
How can we help with CCAR Compliance?
We can review and assess the bank holding company’s portfolio(s) and provide a gap analysis and project design that parallels the FRB methodology, followed by data prep, development, integration, and validation of loss projections using PD, LGD, EAD models.
- Probability of Default (PD)
- Loss Given Default (LGD)
- Exposure at Default (EAD)
We offer ongoing simulation, stress testing scenarios and forecasting based on different macroeconomic conditions.
We will link the loss forecasting models and process in with the Basel metrics calculated in line with the requirements of the Advanced Internal Ratings Based (AIRB) approach for multiple portfolios.
Stress Testing and Capital Assessment
We understand the importance of measuring capital adequacy, stress testing and loss reserve estimation reporting and brings an extensive background in modeling, banking, risk management and simulation to our clients.
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