CCAR benchmark 2019

  • 12 March 2019

The Comprehensive Capital Adequacy Review (CCAR) is a key supervisory requirement for banks conducting business in the United States. This requirement is one of the most complex stress tests that evaluates the capacity with which institutions can withstand economic downturns.

The goal of our annual exercise is to provide participants with a benchmark of methodology and model outputs for their 2019 CCAR submissions. The study will collect a combination of both quantitative and qualitative information, which will build on last year’s CCAR benchmark.

A key feature of the report is the benchmark ratios of different supervisory scenarios (e.g. the ratio of adverse to baseline scenarios), which allows participants a straightforward way to compare their results against those of their peers while maintaining a high level of confidentiality.

The report also collects information on the modelling approaches, risk identification methods, validation processes and common challenges, inter alia.

You can download the CCAR benchmark 2019 summary report below. Only participants from last year's study can access the full report, which is available to download on our member website. 

About this study

The first ORX CCAR-related research project was a relatively small-scale project completed in 2015. Since then, the scope of our annual CCAR benchmark has been expanded, covering the different aspects of CCAR for operational risk in more detail as well as hosting a bimonthly CCAR working group call. Every year we on-board participants to form a steering group, which supports the direction of travel for this annual project.

    The objective of this study was to provide participants with a benchmark of their CCAR operational risk modelling methods and outputs. This study has since expanded to include topics such as the risk identification process, the use of scenario analysis, the forecasting of legal losses, incorporating results into business as usual (BAU) activities and top challenges.

    Participants completed a survey in Q1 2019, the results of which were compiled for this report. This report discusses the methodologies and techniques which were used by a sample of 25 BHCs who created capital plans for CCAR.

    Specifically for this year’s report, the analysis was grouped by submission status. There were banks who were required to submit their CCAR to the Fed (16 firms) and banks who only needed to submit their CCAR to their board (9 firms). The analysis covers several topics including modelling approaches, data usage, and scenario analysis. Furthermore, the report gives insights into the assessment of material risks across a diverse group of BHCs.

      Key Findings

      Firms are looking to drive value in the process beyond regulatory requirements

      The results of stress testing can be too punitive to directly apply to internal financial planning, but firms are increasingly looking to use the inputs to inform the business and senior management of the risks their banks may be facing. Most banks are using the results to assist senior and financial management with decision-making, and results are finding their way into areas such as:

      • Informing capital allocation

      • Highlighting vulnerabilities

      • Comparing against KRI metrics

      • Informing other risk programs

      Changes in submission requirements drives divergence

      In previous years, we had observed an increased use of subject matter expert (SME) and scenario inputs over modelled inputs in CCAR submissions, but this year was the first time that we had found the trend shift direction for those who submitted to the Fed. Those who were required to submit to the Fed showed greater consistency in their approaches and increased their use of models – a directional change in trend and more stable compared to 2018 results. In contrast, those who were not required to submit to the Fed continued to be more flexible relative to their inputs.

      Material risk identification and selection remains a focused challenge

      Most firms agree that identifying their material risks is critical to their overall risk management and are showing that they are working on this process. However, there are a variety of approaches used and this is an area where more work could be done. When it comes to selecting material risks to include in submissions, it appears that more firms struggle with their methodology. No standard practice exists in this area and many of those who participated in this study commented that material risk identification and/or selection of risks for inclusion is one of their top challenges.

      Scenario analysis and SME inputs are important for BAU activity

      Both activities are increasingly used to inform the business of potential risks, so that they can be quantified and mitigated through the implementation of controls and action plans, where possible. This year, several banks expressed that the scenario process itself presents a series of challenges. Due to its qualitative nature, all aspects of the process – from resourcing to validation – were listed as top challenges.

      Data issues continue to be a top challenge

      Data is an on-going issue for banks again this year. It can be unreliable, unsuitable, and in many cases, missing entirely. Since models rely upon data, data quality issues can lead to a lack of confidence in whether the model outputs are as sound as they should be. Many banks expressed this was an area of both current challenge and future work.

      Further information

      If you’d like to participate in next year’s study, or, would like to know more, please get in touch.

      Download the summary report

      ORX CCAR benchmark 2019 summary report

      Find out more about our research

      ORX research studies