Sunday, April 27, 2014

Comprehensive Capital analysis and review, March 2014

The Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) is an intensive assessment of the capital adequacy of large, complex U.S.bank holding companies (BHCs) and of the practices these BHCs use to manage their capital. This process helps ensure that these BHCs have sufficient capital to withstand highly stressful operating environments and be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries.

 In November 20111, The Federal Reserve adopted the capital plan rule , which requires BHC (Banking holding companies) with consolidated assets of $50 bn or more to submit the annual capital plans to the Federal reserve for review.
In the submission Fed expects following detailed description for BHC's following-

1)  Internal processes for assessing capital adequacy
2) Policies governing capital actions such as common stock issuance, dividends, and share repurchases
3) All planned capital actions over a nine-quarter planning horizon.
4) Thee results of stress tests conducted by the BHC under a number of scenarios (company-run stress tests) that assess the sources and uses of capital under baseline and stressed economic and financial conditions.
 Annual CCAR exercise completed by the Federal Reserve for 2014.The 30 BHCs that are part of this year’s CCAR hold 80 percent of the total assets of all U.S. BHCs. The amount and quality of capital held by these institutions have continued to improve, contributing to increased resilience of the banking sector and a strengthening of the financial system more broadly.

The aggregate tier 1 common equity ratio of the 30 BHCs in the 2014 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 11.6 percent in the fourth quarter of 2013.1 That gain reflects a total increase of more than $511 billion in tier 1 common equity from the beginning of 2009 among these BHCs to $971 billion in the fourth quarter of 2013. BHCs have raised equity from external sources, including the equity raised in connection with the redemption of U.S. government investments under the Troubled Asset Relief Program and requirements to raise capital following
the SCAP in 2009. Much of the additional increase in recent years is attributable to a significant
accretion of common equity through retained earnings as capital growth has been supported by
general improvements in profitability across the banking system.

  


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