The Federal Reserve promotes a stable banking and financial system that supports the growth and stability of the U.S. economy. To this end, the Federal Reserve supervises bank holding companies (BHCs), U.S. intermediate holding companies (IHCs), savings and loan holding companies, state member banks, and any nonbank financial institutions that the Financial Stability Oversight Council deems worthy of oversight.
At the end of June, the Federal Reserve published its annual Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve’s annual CCAR exercise is a thorough and comprehensive assessment of the capital adequacy and capital planning practices of the larger financial institutions in the United States. These supervisory actions of the Federal Reserve are intended to facilitate the larger financial institutions achieving their supervisory objectives while using the knowledge and lessons learned from the financial crisis of the last decade.
The 34 bank holding companies in this year’s examination and review have increased common equity capital by more than $750 billion since early 2009. In the 2017 CCAR, the Federal Reserve approved the capital plans of 34 participating banks.
As part of CCAR’s quantitative assessment, firms are required to demonstrate an ability to meet their minimum capital requirements under stress. The fact that all institutions were found to meet minimum capital requirements even under severely adverse conditions was unprecedented in 2017. Factors such as a firm’s projected capital ratios under a hypothetical scenario of severe stress and the strength of the firm’s capital planning processes are considered in this analysis.
Participating companies are also subject to regular supervisory assessments that review and examine their capital planning practices, including payment of dividends, share buybacks, and share issuances. An objection to a capital plan may be raised based on qualitative or quantitative questions. This year, one bank won a conditional “non-objection” which requires it to submit a new capital plan that resolves certain issues in its capital planning.
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