Friday, June 28, 2019

Bank "Stress Tests!"

Fed's 2019 Comprehensive Capital Analysis and Review (CCAR), which the Liberal Art dialectic trained morons who cannot understand the regulatory accounting abstractions typically term the figurative "Stress Tests!", results out yesterday.

CCAR is currently functioning as the control variable of effect out of the 4 separate regulatory functions that constitute US bank regulatory policy.

The Board considers both quantitative and qualitative factors when evaluating a bank's capital plan. Quantitative factors include a bank's projected capital ratio under a hypothetical severe recession. 
Qualitative factors include the firm's capital planning process, including its risk management, internal controls, and governance practices. 
The Board can object to the capital plans of all banks in CCAR each year on quantitative grounds, and firms that have been in CCAR for less than four years are also subject to an objection on qualitative grounds. 
If the Board objects to a firm's capital plan, the bank cannot make any capital action unless authorized by the Board. On balance, virtually all firms are now meeting the Federal Reserve's capital planning expectations, which is an improvement from last year's assessment. 
The firms in the test have significantly increased their capital since the first round of stress tests in 2009. In particular, the largest and most complex banks have more than doubled their common equity capital from around $300 billion to roughly $800 billion during that time.