CCAR Update

CCAR Update

Reported by: Eric Spahr, AxiomSL SME

This week the Federal Reserve issued rulings on banks’ dividend and share buy back plans based on the banks’ submission of their annual CCAR (Comprehensive Capital Adequacy Review). Included in the review were stress test parameter that banks had to use. Five banks were denied their plans: Citibank, RBS, HSBC, Santander, and Zion (which had failed to have projected capital above 5% under stressed conditions).

In objecting to Citi’s plans, the Fed cited “inadequate” improvement in areas flagged as needing more attention and finding fault with Citi’s ability to estimate revenue and loss projections under a stress scenario.

“When viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process to warrant an objection,” the Fed said.

It is the first time the Fed has put foreign-owned banks through the process. The regulator said it often objects to HSBC, RBS, and Santander’s debut plans, adding that the objections were of a qualitative nature – concerning the banks’ controls and models, rather than the level of capital they hold.

Barclays and Deutsche Bank were not part of this year’s stress tests but will be in the future. Their large New York investment banks will draw scrutiny from Fed officials, with any negative results potentially affecting capital distributions within the groups.

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Eric Spahr

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