CCAR 2018: Early Regulatory Indications

March 15 2018

As we reach 2018, it is time to reflect upon the 2017 CCAR results with an eye towards the 2018 CCAR process.

In January of 2017, the FRB issued a final rule which exempted certain BHCs with between $50 billion and $250 billion (mostly regional banks) from the qualitative CCAR requirements. On June 28, 2017, the Federal Reserve Board (“FRB”) released CCAR results for the 34 Bank Holding Companies (“BHCs”) with more than $50 billion in assets. For the third year in a row, all 34 BHCs passed on quantitative grounds. 2017 was also the first year for the CCAR qualitative portion. Of the 34 BHCs, the FRB published results from only 13 BHCs. All 13 BHCs publicly passed with one BHC receiving a conditional nonobjection with requirements to address weaknesses as identified during the process.

Since the release of the 2017 results, there has been much speculation on the future of CCAR particularly in light of Executive Order 13772: “Core Principles for Regulating the United States Financial System.” While the Executive Order broadly announced a desire to make regulatory reporting processes more effective, a survey of publications by the FRB and the Treasury in the latter half of 2017 does not indicate changes to CCAR reporting standards for 2018.

One of the possible directions for CCAR changes is in the process, not standards of the CCAR process. On September 27, 2017, the FRB published proposed rules to simplify regulatory capital rules. However, it is important to note that this is addressed to banking organizations not subject to advanced approaches.

Another possible direction is to promote transparency in the CCAR process and risk models being utilized by the FRB. In a publication released on December 7, 2017, the FRB issued proposals to increase transparency of CCAR stress testing. Specifically, more information on the models used by the FRB to estimate hypothetical losses in CCAR stress testing would be released.

In another publication released on December 7, multiple U.S. banking agencies (the FRB, the Dept. of Treasury, the FDIC and the OCC) stated their joint support for the finalized and reformed Basel III agreement on banking capital standards. Since 2010, the Basel III agreement has served as guidance on the minimum standards for banking regulatory capital.

In summary, while Executive Order 13772 expressed the Administration’s goal to streamline regulatory reporting processes, subsequent publications have not indicated changes in CCAR standards as pertains to BHCs that are subject to advanced approaches. It will be interesting to see whether the FRB will make more risk-based categories to the existing population of BHCs subject to CCAR requirements and whether these categories will ultimately be used to reduce reporting requirements.