An overview of the CCAR

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.

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.

Hexanika to the Rescue!

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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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