SAS: CCAR: An Appraisal Of Current Practices
Posted: 1 August 2014 | Source: SAS
Since the Federal Reserve’s introduction of the Comprehensive Capital Analysis and Review (CCAR) process in 2010, supervisory expectations for all aspects of capital requirements have been significantly heightened for the largest and most complex US banks. In its CCAR 2013 review document (August 2013), the Fed cited current practices by bank holding companies (BHCs) as well as outlined best and suboptimal practices. Many of SAS’ bank customers must now adhere to an even more stringent requirement for creation of a sound and robust capital planning and stress testing program.
In our research of those customers’ current practices, a pattern of issues emerged:
- Data structure and validation. Position data and exposure data necessary for capital calculations must be cleansed and transformed at the required level to accurately reflect the current book of business.
- Risk and financial reconciliation. The risk data used must be reconciled with finance data (GL) before it is reported to regulators for capital adequacy.
- Capital calculation updates. When capital calculation rules change, the latest rules must be applied consistently and as intended in the regulation.
- Risk reporting. All necessary reports and schedules need to be updated and submitted appropriately.
- Auditability. Transparency must be demonstrated down to the source data level. And banks need to be able to document all capital classification and computation rules to a sufficient degree to meet regulatory requirements during the auditing and review process.
This paper highlights how banks are addressing these issues and what they recommend to support current industry practices for risk process management and governance; scenario development; modeling; board management and engagement; and documentation. The observations are based on the report Dodd-Frank Act Stress Test 2014: Supervisory Stress Test Methodology and Results (DFAST 2014), which focused on the assessment framework used to review the capital plans from both quantitative and qualitative perspectives as well as interactions with most of the top 30 CCAR and DFAST (Dodd-Frank Act Stress Test) banks under the Fed or Office of Comptroller of Currency’s (OCC) supervision.