Banking Organization Capital Plans and Stress Tests: Federal Reserve Proposes Elimination of the Qualitative CCAR Assessment for Smaller Firms, Reduction in the De Minimis Exception for Additional Capital Distributions, and Other Notable Revisions to its Capital Plan and Stress Testing Rules

Sullivan & Cromwell LLP - September 30, 2016

On September 26, 2016, the Federal Reserve released a proposal that would modify its CCAR capital plan and stress testing rules applicable to bank holding companies (“BHCs”) with $50 billion or more in total consolidated assets and U.S. intermediate holding companies (“IHCs”) of foreign banking organizations (collectively, “CCAR firms”).  Most notably, beginning with the upcoming 2017 CCAR and DFAST cycle, the proposal would exclude the capital plans of “large and noncomplex” CCAR firms (those with less than $250 billion of total consolidated assets, less than $10 billion of consolidated total on-balance sheet foreign exposure, and less than $75 billion of total nonbank assets) from CCAR’s qualitative review.  Beginning April 1, 2017, the proposal would also reduce the de minimis exception for capital distributions above the amount reflected in a CCAR firm’s capital plan from 1 percent of Tier 1 capital to 0.25 percent of Tier 1 capital.

The proposal contemplates other changes beginning with the 2017 CCAR and DFAST cycle, including:  (i) reduced reporting requirements for large and noncomplex CCAR firms, (ii) a longer transition period for BHCs that cross the $50 billion asset threshold to submit their first capital plan and first participate in DFAST as applicable to BHCs with $50 billion or more in assets, and (iii) a “blackout period” during the second calendar quarter, when the Federal Reserve conducts the CCAR exercise, on notices to use the de minimis exception and requests for prior approval to make additional capital distributions that do not qualify for the de minimis exception.  In addition, beginning with the 2018 CCAR and DFAST cycle, the proposal would extend the period from which the Federal Reserve may select the “as-of date” for the trading and counterparty component applicable to certain CCAR firms.