CCAR benchmark study shows firms face 3 new challenges
- 4 September 2020
ORX has just published the latest summary from the annual CCAR benchmark. Each year, we bring together a community of firms that do the stress test to benchmark their CCAR operational risk modelling methods and outputs. As well as gaining vital insights into the CCAR submissions, participants also join regular group calls and webinars to discuss the outputs in more depth.
This year, we've extended the benchmark to include a second phase following the additional CCAR submission required by the FRB. Our CCAR community is open to members and non-members of ORX alike – find out how you can get involved in the study.
Previous benchmarks identified areas such as scenario analysis and ongoing data issues as key challenges facing firms. However, our most recent study showed that three new challenges have risen to the fore – timing and resources, modelling and macro-economic factors. Here's why they present difficulties.
Three new CCAR challenges identified
Challenge 1: Timing and resources
The first new challenge we identified was the availability of resources. The manual nature of the CCAR process, combined with the frequency of the exercise and the length of time it takes to do, means it's hard for firms to obtain and then maintain the necessary resources to complete a CCAR submission.
Challenge 2: Modelling
The second challenge experienced by many firms was the difficulty of creating models that have the right predictive power and 'goodness of fit'.
Challenge 3: Macro-economic factors
The final area where firms struggled was making reasonable connections between internal risks/lines of business and macro-economic factors, regardless of correlations.
How did coronavirus impact CCAR submissions?
The first CCAR submission of 2020 was due in April when most firms were only just going into lockdown. This meant that they were not able to adjust forecasts accordingly or create scenarios to include in their submission. Our findings showed that few firms included a pandemic scenario in their forecasts, and many of those that did commented that the scenarios probably didn't reflect the economic conditions caused by coronavirus (Covid-19).
Download the summary report to find out more
The summary report from the 2020 CCAR benchmark is freely available for you to download. You can also learn more about our CCAR community and how you can take part.