Legal Exposure Impact on CCAR 2014

Sullivan & Cromwell LLP - November 25, 2013

A series of recent pronouncements by the bank regulators and announcements of large fines and settlements by banks are likely to have a significant impact on the Comprehensive Capital Analysis and Review (“CCAR”) process for 2014.

We anticipate that the Federal Reserve will examine with considerably more intensity both the quantitative and qualitative aspects of the litigation reserving process. We also anticipate that the Federal Reserve’s own models will include a sharply more conservative approach to estimating litigation losses.

Any stressed estimates of litigation losses, moreover, must be thoughtfully reconciled to GAAP reported losses.