The Federal Reserve Board finalized a rule this week, removing large and noncomplex firms from the qualitative assessment of the Comprehensive Capital Analysis and Review (CCAR) for 2017.
This reduces the burden on these firms and focuses the qualitative review on the largest, most complex financial institutions.
CCAR conducts quantitative and qualitative assessments to evaluate the capital planning processes and capital adequacy of large financial institutions.
The qualitative assessment evaluates the strength of each firm’s capital planning process. The quantitative assessment employs hypothetical scenarios of severe economic and financial market stress to evaluate each firm’s capital adequacy.
The new rule exempts large and noncomplex firms from the qualitative assessment, but are still subject to the stress testing as part of the quantitative assessment. Large and noncomplex firms include bank holding companies and U.S. intermediate holding companies of foreign banks with total assets between $50 billion and $250 billion, total nonbank assets of less than $75 billion, and that are not identified as global systemically important banks.
The largest and most complex bank holding companies will remain subject to both qualitative and quantitative components of CCAR. The Federal Reserve Board may continue to object to their capital plans on both qualitative and quantitative grounds.
The rule also reduces reporting requirements for large and noncomplex firms, while decreasing the amount of additional capital a firm can distribute to shareholders without seeking prior approval from the board. Previously, a firm could distribute up to an additional 1 percent of its tier 1 capital beyond the amount in its capital plan. The final rule reduces that amount to 0.25 percent.