CCAR Benchmark 2019
- 1 November 2019
Are you an ORX Member? Log in here for the 2019 CCAR Benchmark report (check if your firm is a member)
How do your CCAR submissions compare?
Each year we run a CCAR study, which allows participants to benchmark their methodology and model outputs for their own CCAR submissions. CCAR (Comprehensive Capital Adequacy Review) is a key supervisory requirement for banks conducting business in the United States. Evaluating the capacity of institutions to withstand economic downturns, CCAR is one of the most complex stress tests that financial firms have to undertake.
The annual ORX CCAR benchmark
The first CCAR-related research project run by ORX was a relatively small-scale project completed in 2015. Since then, the scope of our annual CCAR benchmark has expanded, covering the different aspects of CCAR for operational risk in more detail as well as hosting regular working group calls. Every year we form a steering group which supports the direction of travel for this annual project.
This study provides participants with a benchmark of their CCAR operational risk modelling methods and outputs. It now includes topics such as the risk identification process, the use of scenario analysis, the forecasting of legal losses, incorporating results into business as usual activities and top challenges.
About the 2019 CCAR benchmark study
In this year's benchmark participants completed a survey in Q1 2019. We then compiled the results into a full report for participants and a shorter summary available to everyone. The report discusses the methodologies and techniques which were used by a sample of 25 bank holding companies (BHCs) who created capital plans for CCAR.
Specifically for this year’s report, the analysis was grouped by submission status. There were 16 banks who were required to submit their CCAR to the Fed and nine banks who only needed to submit their CCAR to their board. 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.
Read on for the key findings, or download the CCAR benchmark 2019 summary report. If you took part in the study, then you can download the full report from our members-only website.
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 programmes
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.
If you’d like to participate in next year’s study, or, would like to know more, please get in touch.