The Federal Reserve's 2017 CCAR and DFAST results
Our key takeaways
The Federal Reserve (Fed) released the results of its Comprehensive Capital Analysis and Review (CCAR) for 2017 on June 28. The results of its Dodd-Frank Act Stress Tests (DFAST) were released a week prior on June 22, 2017. In response, Deloitte Risk and Financial Advisory has produced a report that summarizes key facts and takeaways and offers our view on what may be in store for large US banks.
Key facts highlighted in the CCAR press release include:
- For the first time in CCAR’s seven-year history, the Fed did not object to any of the capital plans or capital distributions.
- The aggregate quantitative results were very similar to last year’s test, with all 34 firms exceeding required minimums.
- Two firms, American Express and Capital One, adjusted their original requested capital distributions taking advantage of a so called “mulligan” to fine tune their capital levels.
The prior week’s release of the Dodd-Frank Act Stress Test (DFAST) results provided more detailed information on the Fed’s stress test. Compared to CCAR, those results exclude buybacks and capital issuances and hold past common dividends constant.
Our key takeaways from the DFAST severely adverse scenario results include:
- All firms exceeded minimum required capital under stress for the third year in a row.
- Most firms required to meet the supplementary leverage ratio were well above the minimum Of the 15 advanced approaches firms required to meet the new capital measure beginning in 2018, the vast majority exceeded the 3.0 percent minimum by 2.0 percentage points or more under the severely adverse scenario.
- Aggregate loan loss rates improved compared to 2016, driven by significantly lower loss rates for mortgage-related portfolios but somewhat offset by moderate deterioration in credit cards, commercial & industrial (C&I), and other consumer loans.
Read the Deloitte Center for Regulatory Strategies June 23, 2017, blog: Dodd-Frank Act Stress Test (DFAST): Our take.
Our key takeaways from the full CCAR results include:
- CCAR firms appear to have reached the summit of capital planning and stress testing. With no objections this year and just one firm requiring resubmission, it appears the industry’s multi-year investment in capital planning and stress testing has paid off.
- Short falls in expectations still remain. For the systemic and complex firms that are subject to the qualitative portion of the Fed’s CCAR reviews, the Fed noted that some firms continue to fall short in the following areas:
- Capital actions continue to matter. As in previous years, the requested capital actions have a material influence on minimum post-stress ratios for most firms and were significantly higher than the prior year. Requested capital actions trimmed the aggregate common equity tier 1 ratio by 2.0 percentage points compared to DFAST.
Read the Deloitte Center for Regulatory Strategies June 29, 2017, blog: CCAR: Reaching the summit.
What’s in store for CCAR next year?
The past year has seen a number of actual and proposed changes for the CCAR program. How the program will evolve in the coming year has prompted a great deal of speculation. Here are some areas where shifts are likely to occur.
- Potential inclusion of the qualitative portion into ongoing supervision
- Potential changes to the Fed’s quantitative stress test
- Better transparency into industry practice and Fed stress models
- Shift to efficiency, robotics, and operational excellence
The takeaways, perspectives, and suggestions for preparing for 2018 tests outlined in this report can serve as a starting point for a dialogue on the challenges and opportunities associated with DFAST and CCAR.
To learn more, read CCAR and DFAST: Reaching the summit.
DFAST CCAR Analysis Tool (DCAT)
Deloitte’s interactive, data visualization tool, DCAT (DFAST CCAR Analysis Tool), enables analysis of current and prior DFAST and CCAR results in ways that are relevant to your organization. DCAT, powered by Qlik®, consolidates the Federal Reserve’s publicly available results into a user-friendly, dynamic interface that:
- Enables cross-sectional, year-over-year results comparisons
- Provides the ability to compare and analyze each institution’s capital ratios in light of current regulatory standards
- Supports custom data comparisons through the use of data filters such as bank name, institutional category type, program, scenario, metrics, and reporting year