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Capital and Prudential Standards Blog

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Home Archive for category "Capital Planning & Stress Tests" (Page 3)
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Dodd-Frank Enhanced Prudential Standards Final Rule

Today, the Federal Reserve published a final rule establishing Dodd-Frank enhanced prudential standards for U.S. bank holding companies with ≥$50 billion in total consolidated assets (Large U.S. BHCs) and foreign banking organizations with ≥$50 billion in total consolidated assets (Large FBOs).

By way of background, Section 165 of the Dodd-Frank Act requires the Federal Reserve to establish enhanced prudential standards, including heightened capital standards, liquidity standards, single counterparty credit limits, enhanced risk management requirements, capital stress testing requirements (final rules already issued) and an early remediation framework, for Large U.S.…  Read More

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Key Features of 2014 EU Bank Stress Tests

The European Banking Authority (EBA) has announced key components of the forthcoming 2014 EU stress test that will be conducted on a sample of 124 EU banks covering at least 50% of the national banking sector in each EU Member State.  According to the EBA, the EU stress test aims at ensuring consistency and comparability of the outcomes across all sample banks based on common methodologies, scenarios and disclosures.

Key Features of the 2014 EU Bank Stress Test:  According to the EBA, the 2014 EU stress test will include the following key features:

Capital Thresholds:  A Common Equity Tier 1 (CET1) risk-based capital ratio of 8% will be the capital hurdle rate for the baseline scenario and a CET1 risk-based capital ratio of 5.5% will be the capital hurdle rate for the adverse scenario.  …  Read More

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Risk Governance: Visual Memorandum on Guidelines Proposed by the OCC

The OCC has proposed a set of enforceable and specific risk governance guidelines to formalize its heightened expectations for large national banks and federal savings associations. The risk governance guidelines would set new, and much higher, minimum standards for the design and implementation of a bank’s own risk governance framework and the oversight of such framework by the bank’s board of directors.

State banks that are not subject to the OCC’s proposed risk governance guidelines should still pay attention because the same or similar principles will likely be applied by the Federal Reserve and the FDIC to large state member and non-member banks.…  Read More

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Basel Committee Discusses Fundamental Elements of a Bank’s Capital Planning Process

Today, the Basel Committee published a paper that discusses four fundamental components of a sound capital planning process:  (1) internal control and governance; (2) capital policy and sufficient risk capture; (3) forward-looking view through stress testing; and (4) management framework for preserving capital.

The Basel Committee stated that its paper does not set forth new capital planning guidance.  Rather, it presents sound practices observed at some banks, which the Basel Committee believes can foster overall improvement in banks’ capital planning processes. …  Read More

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Davis Polk Blackline Comparing Federal Reserve’s Final and Proposed Policy Statements on Stress Test Scenario Design

Today, the Federal Reserve issued a final policy statement describing the processes it will use to develop scenarios for future capital planning and stress testing exercises.  The policy statement will be used to develop supervisory scenarios for both annual supervisory and company-run stress tests.  It describes the characteristics of the stress test scenarios and explains the procedures for formulating the scenarios.

The Federal Reserve noted that the macroeconomic scenarios released last week for the 2014 stress testing exercise are consistent with the final policy statement.…  Read More

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Davis Polk Blackline Comparing 2014 CCAR Instructions with 2013 Instructions

Yesterday, the Federal Reserve issued instructions for the 2014 Comprehensive Capital Analysis and Review (CCAR).  Thirty bank holding companies with $50 billion or more of total consolidated assets will participate in the 2014 CCAR, including 18 bank holding companies that participated in the 2013 CCAR and 12 bank holding companies that will participate in CCAR for the first time.

We have created a blackline that compares the Federal Reserve’s 2014 CCAR instruction with its 2013 instructions.

View Blackline Comparing 2014 CCAR Instructions with 2013 Instructions (PDF) Read More

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