CCAR is an intensive assessment of the capital adequacy and capital planning processes of large US BHCs (Bank Holding Companies), and through the CCAR assessment the FRB seeks to ensure that large BHCs have strong processes for assessing their capital needs.1 CCAR assesses the strength of internal controls and the effectiveness of oversight by boards of directors and senior management, together with the existence of firm-wide practices to identify, measure and manage their material risks. The FRB observes that in the 2016 submission, capital planning processes at most of the BHCs participating in CCAR have strengthened since last year. Both large and non-complex CCAR eligible firms have made steady progress over 2015, with most either meeting, or close to meeting supervisory expectations.2


All but one of the largest US banks earned an unconditional pass from the Federal Reserve System (Fed) on their annual stress tests. For the one US Investment Bank that did not pass, regulators voiced concern over the company’s internal controls and processes. Failing grades were given to the US subsidiaries of two European banks, both of whom have failed in previous years.

What this Means

The stress test results are no doubt a welcome relief to the majority of US banks. Shortly after the Fed made the results public, one large US bank announced that it would more than triple its dividend, to 16 cents from 5 cents, and buy back as much as $8.6 billion in stock.3 Another will increase its dividend to 7.5 cents from 5 cents, and purchase $5 billion in stock.4 For the institutions that failed the test, while the Fed has said they all had big enough financial buffers, there was criticism of the qualitative aspects of their internal operations. The Fed did not object to the capital plan of one US Investment Bank that did not pass the test, but the shortcomings are sufficient for concerns, and so a new capital plan must be submitted by the end of the year. While they will be able to return money to shareholders, the Fed could halt those payments if improvements are not met.5 As reported in news articles, for the two European Bank subsidiaries, failing the stress test prevents them from distributing capital to their parent companies. It also raises bigger concerns about their ability to satisfy US regulators. They have both failed these stress tests multiple times.

Key Observations and Take-aways

Overall it appears that firms have stronger balance sheets in 2016 than in 2015. All 33 institutions exceeded minimum capital thresholds under the Fed’s stress models. Most BHCs have consequently increased their dividend pay-outs and declared buy-back in their capital plans, while still gaining Fed approval.6 This reflects in our view the confidence of the Fed in institutions’ strength and capital positions. The one ratio to keep an eye on is the Leverage Ratio as a majority of the BHCs seem to be close to the regulatory minimums.

While no BHC failed CCAR on quantitative grounds, most Large and Complex BHCs fell short of meeting the higher supervisory expectations due to weaknesses in their internal controls and processes for capital planning. Thus the focus for the next year should shift to strengthening internal controls and processes that are supported by frequent, year-round interactions with the Fed through ongoing independent review and audit.

As we analyze losses, it appears that the combined aggregate loan losses of all 33 BHCs have stabilized and are at a similar level as in 2015. Looking deeper though, some trends begin to emerge. The loss rate improvements from the last several years’ CCAR results have stalled, except for Commercial Real Estate and Mortgage where the loss rates are lowest since 2013. This could be most likely attributed to the recent and expected improvements in property prices and values for both residential and commercial real estate assets.

The strong recessionary assumptions appear to have had a greater impact on traditional lenders compared to trading firms. Traditional lenders such as regional banks were more affected by negative short-term interest rates and a greater stress in the real economy, resulting in elevated loss rates and depressed revenues. We have observed that overall, the industry reported the highest PPNR (Pre-Provision-Net-Revenue) rates over the last several years under stressed scenarios. This was partly due to a boost in trading revenues as recessionary scenarios focused more heavily on factors adversely impacting lending activities, and for trading firms, a reduction in illiquid securitization exposures in the trading books. As expectations for low interest rates continue through the foreseeable future, the negative interest rate scenario and associated adverse impact should be a vulnerability that firms will need to account for.

In this and previous years, the Fed has applied the CCAR stress tests only to specific subsidiary units of the previously mentioned European banks. So, going forward these two banks, as well as other foreign banks with large US operations and that have not yet undergone stress tests will have to file.7 In 2017 the Fed will conduct a trial test of these banks and keep the results private. These foreign entities are organizing their US operations into IHCs (Intermediate Holding Companies) and will be subjected to the full CCAR stress tests, with the results made public in 2018.8  

For more on CCAR, see our paper: Comprehensive Capital Analysis and Review: Industry Practices in Model Validation



  1. “Comprehensive Capital Analysis and Review 2016: Assessment Framework and Results,” Board of Governors of the Federal Reserve System, June 2016. Access at:
  2. Ibid
  3. “Nearly All U.S. Banks Pass Fed’s Stress Test,” The New York Times, June 29, 2016. Access at:
  4. Ibid
  5. Board of Governors of the Federal Reserve System, Press Release, June 29, 2016. Access at: “Nearly All U.S. Banks Pass Fed’s Stress Test,” The New York Times, June 29, 2016. Access at:
  6. “Comprehensive Capital Analysis and Review 2016: Assessment Framework and Results,” Board of Governors of the Federal Reserve System, June 2016. Access at:
  7. “Nearly All U.S. Banks Pass Fed’s Stress Test,” The New York Times, June 29, 2016. Access at:
  8. Ibid

Newsletter Author: Samantha Regan, Mairi Bryan

Newsletter Contact Person: Nghi Pham

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