1/28/15 - Getting the Most out of the CCAR Calendar
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1/28/15 - Getting the Most out of the CCAR Calendar

Banks participating in the 2015 Comprehensive Capital Analysis and Review recently submitted their capital plans to the Federal Reserve Board. The 2016 submissions are due in April of next year instead of January, which gives banks an additional three months to prepare. Even with the ongoing supervisory review of the results, executives at institutions subject to CCAR are likely tempted to draw a deep breath and relax.

But the temptation to ease off could put those banks at a competitive disadvantage. Supervisory expectations have increased with each round of stress testing. It's a good bet that supervisors will expect banks to put the extra time to good use in advance of the April 2016 submissions. Because supervision is to some extent relative, with examiners comparing banks against one another, slow movers risk standing out as laggards in the next round.

Many banks have been focused on improving modeling or collecting more and better data. Both are critical, but attention to these issues alone may not be enough. Banks should consider improvements in three areas to build sustainable stress-testing processes capable of supporting business operations and capital planning: automating the stress-testing process; properly staffing it; and using the results to improve how the institution is run.


Though stress testing never will be a fully automated push-the-button routine — doing it right takes careful thought and good judgment — success depends upon automating as much of the process as possible. Too many banks still cut and paste data from different systems into their stress-testing models, and then cut and paste model results to generate final numbers. That kind of manual intervention invites errors. It adds elaborate and unnecessary steps that contribute to burnout and turnover, as employees tired of working long hours quit in frustration. And most important, it slows down the end-to-end process. If stress scenarios take too long to run, stress testing loses its appeal as a tool for evaluating business decisions that demand timely action.

With good automation, banks can execute stress tests quickly and regularly under different sets of assumptions, rather than only once or twice a year when required by regulation. And they could more easily run a larger number of scenarios, reflecting a wider and perhaps more relevant range of stressful conditions than they currently do for CCAR. Thus, banks would get more value from the investment they've made in the stress-testing infrastructure.

Many large banks are making use of data warehouses to store and organize up-to-date data for stress testing. Data warehouses, paired with linked systems that allow straight-through processing, make stress testing faster, less error-prone, and less expensive in the long run.  


Staffing issues relate to both leadership and manpower. Done effectively, stress testing at a major financial institution requires committed senior leadership as well as a lot of arms and legs. Too many banks have been in denial, treating capital stress testing in particular like a special project rather than a core management activity. At those banks, running and overseeing such stress tests is an add-on to existing responsibilities.

Banks should evaluate their staffing needs for sustainable stress testing, recognizing that there will be needs across the enterprise; stress testing touches many parts of the business.

Leadership must be enterprisewide and cross-functional. A committed team is crucial, but the most successful banks designate a single sponsor who understands stress testing, knows how the institution works, and has the stature and authority to ensure stress testing is done right.

Using the Results

Stress testing is a powerful tool that should be put to use in making decisions throughout the bank. A persistent supervisory criticism has been that the stress testing associated with capital planning is not well integrated with ongoing business processes at banks. As such, bank supervisors are growing impatient with banks that still treat the CCAR like a special project.

Stress-testing results should influence everything from strategic decisions to portfolio-allocation decisions to product design and pricing decisions. Properly conceived, stress testing provides real value and helps executives run the bank better.

Supervisors have made clear through guidance that stress testing should be integrated with:

  • Risk identification and measurement
  • Business-line strategies
  • Capital adequacy and planning
  • Contingency funding plans
  • Strategic planning
  • Recovery and resolution planning

To realize the vision of broad business use, stress testing requires active business engagement on both the front and back end. On the front end, business executives must help modelers understand the risks facing the institution. On the back end, they need to make sure that stress-test results make sense.

Banks that use results to guide the institution — in a thoughtful way, recognizing the variability and limitations of those results — will gain credibility with regulators by signaling confidence in their process. Perhaps more important, those results will provide new information about the risks the institutions face, leading to better decisions and stronger financial institutions.

Contact Promontory

We would be happy to discuss any questions you may have about stress testing and the CCAR process. For more information, please contact:

Art Angulo
Managing Director, New York
+1 212 542 6845

Mark Levonian
Managing Director and Global Head for Enterprise
Economics and Risk Analysis, Washington, D.C.

+1 202 370 0422

David Samuels
Managing Director, New York
+1 212 542 6776