Comprehensive Capital Analysis and Review (CCAR) Snapshot

Comprehensive Capital Analysis and Review (CCAR) Snapshot

Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means,

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TABLE OF CONTENTS

1 Introduction – CCAR _______________________________ 3

2 Key Milestones ___________________________________ 4

3 Impact Assessment ________________________________ 4

4 Considerations ____________________________________ 5

5 Opportunities ____________________________________ 6

6 How we add value _________________________________ 7

7 About the Author __________________________________ 8

8 About Hatstand ___________________________________ 9

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Comprehensive Capital Analysis and Review (CCAR) Snapshot

Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means,

electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. 3

1 Introduction – CCAR

Comprehensive Capital Analysis and Review (CCAR) was established by the Federal Reserve in 2011 and is an annual assessment of the capital adequacy of large complex Bank Holding Companies (BHCs) operating in the U.S. It tests for whether there is sufficient capital to cover operations in times of economic and financial stress and whether a robust, forward-looking, capital-planning process is in place. This includes the firms’ planned capital actions like dividend payments, share buy-backs and share issuances. CCAR requires both a quantitative and a qualitative approach to reporting capital. The Federal Reserve can object to a BHC’s capital plan on either quantitative or qualitative grounds. CCAR applies to BHCs with global assets of $50B or greater and there are currently 31 BHCs required to participate in this exercise. The 31 firms that participated in the 2015 CCAR submissions currently hold more than 80% of all of the U.S. BHCs’ assets. The 2008 Financial Crisis showed that both quantity and quality of capital contributes to a BHC’s ability to weather a storm. Post-recession, we have seen an improvement in the overall systemic resilience of the financial business sector. According to Federal Reserve Governor Daniel K. Tarullo, “Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn.” The scenarios tested cover a baseline, as well as adverse and severely adverse scenarios, and include 28 variables, which cover economic activity, unemployment, exchange rates, prices, incomes, and interest rates. The adverse and severely adverse scenarios are purely hypothetical and do not reflect the Federal Reserve’s forecasts, but rather, are designed to assess the health of each BHC and their resilience in the face of adverse economic environments.

According to Federal Reserve Governor Daniel K. Tarullo, “Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn.”

Comprehensive Capital Analysis and Review (CCAR) Snapshot

Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means,

electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. 4

2 Key Milestones

April 5 2016 Next Capital Plan due to Federal Reserve. Execution period moving from Q4 to Q1.

This is a change to the previous requirement to submit

plans in January of each year. This provides a one-time additional quarter in which to implement enhancements based on formal Federal Reserve feedback from the 2015 submissions.

Going forward capital plans must be submitted to the

Federal Reserve in April of each year.

3 Impact Assessment

CCAR is a tool that the Federal Reserve is using to check that large BHCs

have sufficient Tier 1 capital on hand in stressed scenarios and also have in

place robust processes for managing this capital, supported by effective

firm-wide risk identification, measurement, management and governance

practices.

A key focus of the Federal Reserve in the 2015 reporting cycle concerned

material risk identification, a comprehensive process for identifying the

full range of relevant risks arising from a BHC’s exposures and business

mix. This includes those exposures that may only become apparent under

stress.

CCAR is a tool used by the Federal Reserve to assess Tier 1 Capital and how it is managed, risk management and governance practices.

Copyright 2015 by Hatstand Ltd or a Hatstand affiliate/subsidiary company. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means,

electronic, mechanical, photocopying, recording, or otherwise, without prior written permission.

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