Bank Holding Companies (BHC’s) may be subjected to severe financial and economic stress from time to time, which impacts their operations. Hence the Federal Reserve carries out an exercise called the Comprehensive Capital Analysis Review (‘CCAR’) every year.

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What is CCAR?

CCAR is a regulatory framework that helps supervise, assess and regulate the BHCs. It ensures that Large Bank Holding Companies (consolidated assets of $50 billion or more) have enough capital to continue their operations through times of financial stress.

 

Purpose of the CCAR

The main purpose of the CCAR is to facilitate the Bank Holding Company’s internal planning process and its proposed capital distributions. Adequate capital is crucial for the BHCs to absorb any kind of unexpected loss and continue to lend to consumers and businesses.

 

Elements in a Capital Plan:

A capital plan is a written presentation of the company’s capital adequacy and capital planning strategies that includes some mandatory elements. These mandatory elements are listed below:

  1. An assessment of expected use of capital
  2. Description of the planned capital actions.
  3. Expected changes to BHC’s business plan that would impact its capital adequacy
  4. BHC’s process for capital adequacy assessment including the BHC’s method of maintaining capital ratios above regulatory minimum levels.
  5. BHC’s capital policy

 

CCAR Challenges for Banks:

Banks face challenges in meeting the qualitative aspects of the CCAR expectations. They need to revamp business intelligence, revenue projections, capital planning and risk monitoring.

The challenges can be divided into two categories, viz., Data Challenges and Regulatory Reporting Challenges.

Data Challenges          Regulatory Reporting Challenges
  • Inferior data quality that creates resistance to comply with the CCAR reporting.
  • There are huge gaps in data quality, availability and accuracy that need to be eliminated.
  • Large volumes of data needed to be maintained to perform stress tests.
  • Due to rapid growth of data requirements, the system needs to be upgraded periodically to increase memory and storage.
  • CCAR requires data integration, which is costly and time consuming.
  • CCAR and DFAST Reporting need to be accurate and cost effective.
  • Regulations are dynamic and fluctuating in nature.
  • Regulatory environment is complex.
  • Significant amount of time and resources are required for the report preparation process

 

Hexanika to the Rescue!

Hexanika is a RegTech big data software company, which has developed a software platform SmartJoin, and a software product SmartReg for financial institutions to address data sourcing and reporting challenges for regulatory compliance.

The automated nature of SmartReg keeps regulatory reporting in harmony with the dynamic regulatory requirements. SmartReg keeps pace with new developments and latest regulatory updates , thereby catering to market needs efficiently.

References:

http://libertystreeteconomics.newyorkfed.org/2012/07/ccar-more-than-a-stress-test.html#.VkNEEdbFLVs

http://riskarticles.com/wp-content/uploads/2013/06/An-Introduction-to-CCAR.pdf

http://www.moodysanalytics.com/~/media/Brochures/Enterprise-Risk-Solutions/Regulatory-Reporting/Regulatory-Reporting-for-Comprehensive-Capital-Analysis-and-Review.pdf

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