Bank Capital Plans and Stress Tests: Federal Reserve Issues Instructions and Guidance for the 2014 Comprehensive Capital Analysis and Review Program

Sullivan & Cromwell LLP - November 6, 2013

Last Friday, the Federal Reserve issued its summary instructions and guidance (the “CCAR 2014 Instructions”) for the supervisory 2014 Comprehensive Capital Analysis and Review program (“CCAR 2014”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Eighteen Covered BHCs will be participating in CCAR for the fourth consecutive year in 2014. An additional 12 institutions will be participating in a full CCAR for the first time during this 2013-2014 cycle.

CCAR 2014 is being conducted under the Federal Reserve’s capital plan rule, which requires the submission and supervisory review of a Covered BHC’s capital plan under stressed conditions (the “Capital Plan Rule”). The Federal Reserve recently amended the Capital Plan Rule to clarify how Covered BHCs must incorporate the new Common Equity Tier 1 measure and methodology for calculating risk-weighted assets from the recently adopted U.S. Basel III-based final capital rules into their capital plan submissions and Dodd-Frank stress tests for the 2013–2014 cycle. Under the Capital Plan Rule and CCAR 2014, a Covered BHC’s capital plan is evaluated by the Federal Reserve on both quantitative (that is, whether the Covered BHC can meet applicable numerical regulatory capital minimums and a Tier 1 common ratio of at least five percent) and qualitative grounds.

In addition, elements of CCAR 2014 are implemented through the Federal Reserve’s rules implementing the stress test requirements of Section 165(i) of the Dodd-Frank Act. All 30 of the Covered BHCs subject to CCAR 2014 must submit their capital plans to the Federal Reserve on or before January 6, 2014.

In general, the CCAR 2014 Instructions follow previous CCAR iterations. There are some notable aspects, including changes for this year.