CCAR & DFAST: A Simple Guide

If you work in, or your role is linked to the US financial sector no doubt you will have heard of CCAR and DFAST. But would it help you to better understand what these regulatory frameworks involve? If so, our simple guide has you covered. 

Learn more about the impact CCAR and DFAST have had on the US banking sector as we discuss the challenges they present to financial institutions. 

The Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Tests (DFAST) are regulatory frameworks introduced to enhance the resilience of banks and financial institutions to economic shocks. Here’s how they work.

What is CCAR?

Managed by the US Federal Reserve, CCAR is an annual assessment of institutions’ capital planning processes, ensuring sufficient levels of capital to maintain operations through periods of economic stress or financial crises.

The three main principles for CCAR, born out of the 2008 global financial crisis, are:

  1. To assess whether banks possess adequate capital for their needs, both now and in the future
  2. To review the capital structure & stability to various stress-test scenarios.
  3. To assess planned capital distribution, including shares or dividends, for viability with minimum capital requirements.
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What is DFAST?

DFAST, which is also run by the Federal Reserve, requires institutions with total assets of >$10 billion to conduct and submit the results of these stress test assessments, while also disclosing them to the public.

The assessment is designed to provide regulators with forward-looking information to aid banking supervision whilst also reassuring the US public of the resilience of the US economy should another crisis hit.

The difference between CCAR and DFAST

While CCAR and DFAST are remarkably similar, it’s important to note that there are significant differences between the two regulatory frameworks.

The key difference relates to the size of the institutions that these regulations apply to. CCAR is the go to legislation for larger companies. If a company has considerable assets, it will need to be compliant with CCAR. The DFAST assessment must be completed by institutions whose total assets do not exceed $10 billion, yet larger organizations also need to complete this annually.

CCAR is used solely to assess the planning processes of larger institutions, which may have assets that exceed the DFAST requirements by a considerable amount. The tests and related rules of CCAR and DFAST are different, so institutions need to be aware of the specific details of both.

What are the challenges of CCAR?

The requirements of CCAR and DFAST present numerous challenges for banks, who must effectively calculate potential loss events linked to a wide range of potential economic variables. Often this statistical analysis is performed on models constructed, at least partially, using spreadsheets – still the go-to tool due to their familiarity, low cost, and flexibility.

However, these spreadsheet models can get unwieldy very quickly, meaning a loss of transparency, and therefore trust, in the data they provide in the stress-testing process.

Help with CCAR & DFAST compliance

Having accurate and up-to-date data is key to delivering CCAR results. Without being able to identify and control all spreadsheets involved in the stress testing process, Institutions at best face a time consuming manual process to ensure accuracy or at worst, a risk of non-compliance.

Our reporting technology provides the capability to automate the identification and monitoring of key spreadsheets, ensuring data accuracy by removing the need for manual checking. By bringing the same level of control, auditability and transparency in place in corporate IT systems to Excel spreadsheets, they can continue to be used for their power and flexibility, as part of CCAR and DFAST compliance processes.

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