CCAR & DFAST: A Simple Guide

If you work in, or in a role linked to, the US financial sector? You will have heard of CCAR and DFAST. However, would it help you to understand what these regulatory frameworks involve, what impact they have on the US banking sector and the challenges they present to financial institutions? Our simple guide has you covered.

Put simply, 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. 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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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, whilst also disclosing them to the public. In doing so 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.

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 utilized for their power & flexibility as part of CCAR and DFAST compliance processes.

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