Federal Reserve System s Assessments of Capital Planning Present and Future

Transcription

1 Federal Reserve System s Assessments of Capital Planning Present and Future Joint IMF/World Bank/FRS Forum *The views expressed here are those of the presenter and do not necessarily reflect the views of the Federal Reserve Bank of San Francisco or the Federal Reserve System.

2 What is CCAR? Purpose To facilitate supervisory assessments of a bank holding company s internal capital planning process and capital adequacy Frequency Approach Bank holding companies with total assets equal to at least $50 billion must submit a capital plan to the Federal Reserve on an annual basis, and internally developed stress test results twice a year Central mechanism in Federal Reserve s supervisory approach to capital adequacy. It is a forward-looking assessment of large, complex bank holding company capital adequacy relative to severely adverse operating environments Capital Ability of capital to absorb conditionally expected losses and continue to meet the needs of their customers ( going concern analysis ) 2

3 A Brief History of CCAR Enhancements and Results Quantitative Objections: Zions Quantitative Objections: Ally, Citi, Suntrust, Metlife Program Developments: Improved disclosures, more formal independent supervisory modeling 2012 Quantitative Objections: Ally 2013 Qualitative Objections: BB&T, JPMC, GS Program Enhancements: Option for limited downward Adjustments, independent supervisory modeling included Pre-provision net revenue, issued ROPE paper Qualitative Objections: Citi, HSBC, RBS/Citizens, Santander Program Enhancements: Supervisory modeling included B/S, RWA; Issued common themes feedback, enhanced review of remediation plans Qualitative Objections: DBTC, Santander, BAC Program Enhancements: Establish Program Oversight for year round assessment, increased engagement with new entrants 3

4 CCAR 2015 Assessment Results Source: CCAR 2015: Assessment Framework and Results 4

5 CCAR Qualitative Assessment Supervisory expectations fall under three main categories: Analytical framework for evaluating capital adequacy Assess impact of all material risks under a range of stress scenarios Use conceptually sound methodologies for estimating losses, revenues, and balances Analyze sensitivity of results to key assumptions and uncertainties The quality and breadth of coverage of internal controls Effective oversight and challenge of the capital planning process Independent validation of the stress testing models and analytics Robust internal audit review and audit coverage of process Process formalization and effectiveness of governance Policies that lay out roles and responsibilities for all functions Sufficient board and senior management engagement and resourcing of capital planning process 5

6 A Seven Step Program to Sound Capital Planning 6

7 Current Areas of Focus of Qualitative Assessment Risk Identification Does the firm have a repeatable and dynamic process for determine what risks are material/should be evaluated as part of its capital planning program? Does the process include the risk level of stakeholder engagement (business heads, risk professionals, etc.) and drive strategic decisions? Scenario Design Does the firm s process for developing scenarios to consider as part of stress testing link to its risk identification process? Are scenarios defined in such a way that they can credibly lead to consistent application across the enterprise? Model Risk Management Does model risk management have the appropriate stature within the organization? Are there elements of model risk management (model development standards, preimplementation testing procedures, ongoing performance monitoring processes) specific to stress testing models? Internal Audit Has audit enhanced the audit universe to include new business processes developed as part of the capital planning program? 7

8 Organizational Structure for Qualitative Assessment CCAR Executive Committee Oversight Group Chair Paul Sternhagen Credit Risk OG Member Market Risk OG Member PPNR, Bal, RWA, and Ops Risk OG Member CRT OG Member COO and OG Member Wholesale RET Securities RET CARAT: Net Interest Income and Banking Book Balances/RWA CRT Onboarding Retail RET Trading RET CARAT: Noninterest Income and Expense, Trading Book Balances/RWA CCAR Program Management Counterparty RET Operational RET 8

9 Program Challenges & Next Steps Further incorporation in year-round supervisory program leads to better supported assessment But has significant resource implications and creates challenges in prioritization Regulatory reform and new rule making with add a significant number of additional institutions to the CCAR program over the coming years These include insurance companies and non-bank financial institutions many of which pose significantly different risk profiles Will require the development of refined process expectations (qualitative test) and new supervisory models (quantitative test) Intermediate Holding Company Rule represents a very near term challenge in terms of inclusion of additional firms: Transfer pricing issues and inconsistencies among firms may lead to challenges in terms of comparability of results Policy decisions required around the large counterparty default assessment Scope of U.S. Broker/Dealer treatment in CCAR still uncertain Speaks to the importance of enhancing home/host relationships and supervisory dialogue! 9